The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
—————-
Valentin Luz, LMU Munich
Ambiguity and the Skewness Premium
with Ralf Elsas (LMU Munich) and Johannes Gerd Jaspersen (LMU Munich)
Assets are priced according to the preferences of investors. Our theoretical model shows that ambiguity – that is the uncertainty about stock returns’ probability distribution – affects investors’ preferences for the skewness of stock returns. In a CAPM equilibrium, skewness premiums increase when stock returns become more ambiguous. We test this interaction empirically and find evidence for it both cross-sectionally and when considering within-firm variation. Our findings hold for both skewness in historical stock returns and expected risk-neutral skewness calculated from option prices. They cannot be explained by limits to arbitrage, news tangibility, or investor belief heterogeneity.
