Review of Financial Studies Vol. 31 No. 12 2018

Skewness Consequences of Seeking Alpha

Kerry Back¹; Alan D. Crane²; Kevin Crotty²

¹ Jones Graduate School of Business and School of Social Sciences, Rice University · ² Jones Graduate School of Business, Rice University

Abstract

Mutual funds seek alpha, but coskewness is also an important performance attribute. Coskewness of fund returns is associated with market timing, liquidity management, and derivative use. Measures of active management associated with positive alphas are also associated with undesirable coskewness. When controlling for other characteristics, coskewness is positively associated with activity measures related to market timing and negatively associated with activity measures related to stock picking. In the cross-section of funds, the latter effect dominates, so funds generate undesirable coskewness in the pursuit of alpha. Money flows to funds with desirable coskewness. Received October 25, 2016; editorial decision January 29, 2018 by Editor Stijn Van Nieuwerburgh.

DOI

10.1093/rfs/hhy029

Volume

31

Issue

12

Pages

4720-4761

Language

en

Sources

bibtex:phds-export.bib crossref openalex

Cite

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