Investors’ Pursuit of Positive Skewness in Stock Returns. An empirical study of the Skewness effect on market-to-book ratio

Abstract

This paper finds that higher positive skewness in stocks’ return distribution may lead to higher valuation in terms of market-to-book ratio. In addition, we find that this relationship was not affected by the recent financial crisis in 2008. These inferences remain qualitatively unchanged subject to robustness testing. We propose well-known psychological biases as partial reasons for investors’ preference for positive skewness.