Robert Z. Aliber, Bhagwan Chowdhry, Shu Yan; Some Evidence that a Tobin Tax on Foreign Exchange Transactions May Increase Volatility *, European Finance Re

Existing studies have found that ex post stock returns are positively skewed, but such skewness is only persistent for individual stocks, not for portfolios. This implies that the ex post knowledge of skewness may not be useful in ex ante portfolio selection. However, the portfolios in these studies are not optimally formed because preferences for skewness are not taken into consideration when forming these portfolios. It is more meaningful to see if the positive skewness would persist in optimally formed mean–variance–skewness efficient portfolios. Using stocks from both Japanese and US markets and a bootstrap method, we find that the portfolios optimally formed by using a polynomial goal programming method, which considers preference for skewness, greatly enhances skewness persistence over time. Our results are robust across both Japanese and US stocks. However, the skewness persistence is stronger for portfolios formed with monthly data than that with weekly data. These findings have practical implications to investors with skewness preferences.