Citation:

Shilpa Peswani. "Evidence of the Preference for Skewness from the Indian Stock Market" International Research Journal of Economics and Management Studies, Vol. 3, No. 4, pp. 78-82, 2024.

Abstract:

The portfolio of least risky stocks outperforms the market returns and its counterparts in the Indian equity market. These results are robust for the study period from January 2000 to September 2022. The low-risk phenomenon is not a substitute for any established factor. A portfolio-level cross-sectional regression analysis reveals that the highest return during the previous month, the MAX factor, and projected stock returns have a negative and substantial relationship. The difference in excess returns and risk-adjusted returns between the stocks in the lowest and highest MAX deciles is more than 1.5%. These outcomes hold up well against the three Fama and French (1993) factor asset pricing models. The low-risk phenomenon is not driven by a preference for skewness in the Indian equity market.

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Keywords:

Lottery-Like Payoffs, Skewness Preference, Idiosyncratic Volatility, Cross-Sectional Return Predictability.