Yijie (EJ) Zhang 
Yale SCHOOL of MANAGEMENT
Home | Curriculum Vitae | Research
“Individual Skewness and the Cross-Section of Average Stock Returns”
(job market paper)
This paper introduces a novel method to compute individual stock return skewness, and presents strong evidence that this skewness measure predicts monthly stock returns in the
cross-section. Instead of relying on a
long history of past self returns, I use recent returns from a peer group to
compute skewness for each stock. I group stocks by
their industry membership, book-to-market ratio and size, and past return correlation
with other stocks, and the skewness measure works in
all cases. Depending on the method, a long-short portfolio that longs stocks
with the lowest skewness, and shorts stocks with the
highest skewness, produces average raw and
risk-adjusted returns between 30 to 90 basis points per month from August 1963
to December 2004.
“Differences of Opinion, Public News Announcements,
and Stock Return Distributional Asymmetry”
I
investigate how differences of opinion among traders affect stock price
reactions to public news announcements and the distributions of individual
stock returns, with an emphasis on skewness. In a
parsimonious model two groups of traders differ from each other by a parameter
which measures how strongly these groups react to public news announcements. As
a result various moments of the return distribution can be characterized by
functions of this difference. Some theoretical results are that stock returns are
positively skewed, that skewness is positively
correlated with the degree of differences of opinion, but negatively correlated
with past absolute returns, and that on average the immediate response to
public news announcements is positive. I use measures of dispersion in
analysts’ earnings forecasts, as well as size, to proxy for differences of
opinion in empirical tests of the model. These variables prove to be important
cross-sectional predictors of skewness and the
average price reaction to earnings news. A long-short trading strategy based on
the short-term price reactions around earnings announcement days would have
earned an average monthly return of 0.82 percent with a standard deviation of
3.42 percent from 1990 to 2003.
“Performance Chasing, Parameter
Uncertainty, and Closed-end Fund Discounts”
Performance chasing of individual investors has a
large impact on the time series dynamics of closed-end fund discounts. More specifically, past NAV performance,
whether relative to S&P 500 Index returns or not, Granger-causes closed-end
fund discounts in a VAR framework for individual funds. Discounts are highly affected by past
cumulative relative returns, and the relation is robust even when a bootstrap
methodology is applied. Prices and
discounts thus seem to be “backward looking.”
The performance chasing behavior is different from the investor
sentiment story of Lee, Shleifer and Thaler (1991). I do
not find support in a dataset that contains information about manager tenures
for the hypothesis that performance chasing is an outcome of parameter
uncertainty.