What Does Skewness of Firm Fundamentals Tell Us About Firm Growth, Profitability, and Stock Returns
نویسندگان
چکیده
This paper investigates whether the skewness of firm fundamentals is informative about future firm performance and stock returns. We present two distinct preference-free theoretical models of firm fundamentals, both of which imply a positive relation between the skewness of firm fundamentals and expected stock return. Consistent with this implication, we show empirically that the skewness measures of firm fundamentals positively predicts cross-sectional stock returns. Further supporting both models, we find that higher fundamental skewness implies not only higher future firm growth option but also higher future firm profitability. Our results cannot be explained by existing risk factors and return predictors including the levels of firm fundamentals and the skewness of stock returns. ∗Spears School of Business, Oklahoma State University; Stillwater, OK, 74078, USA; phone: +1 405 762 0197; fax: +1 405 744 5180; email: [email protected]. †Spears School of Business, Oklahoma State University; Stillwater, OK, 74078, USA; phone: +1 405 744 5089; fax: +1 405 744 5180; email: [email protected]. What Does Skewness of Firm Fundamentals Tell Us About Firm Growth, Profitability, and Stock Returns
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