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Lionel Martellini

Scientific Director, EDHEC Risk Institute

lionel.martellini@edhec.edu

www.edhec-risk.com

2

Outline

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

3

Introduction: Beyond Cap-Weighting

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

4

Beyond Cap Weighting

Comparing Alternatives

and launched non cap-weighted indices.

– fundamental indices

– equally-weighted indices

– minimum variance indices

– efficient indices

– equal-risk contribution (a.k.a. risk parity) indices

– maximum diversification indices

assumptions behind, the various indexing concepts.

5

Beyond Cap Weighting

Concepts versus Figures

definition) all look pretty good!

conceptual assumptions underpinning the different methods.

– (Even out-of-sample) track records are sample-dependent and thus

performance figures rely on the data and time period at hand.

– For long-term benchmarks, it is important that performance is driven

by a sound concept that relies on reasonable assumptions rather than

by exploiting anomalies in past returns data.

– If achieving higher risk-adjusted performance is not the focus of a

methodology, achieving it is at best a collateral benefit.

“If one does not know to which port one is sailing, no wind is favorable.”6

Beyond Cap-Weighting

Which Port do we want to Sail to: Indices versus Benchmarks

interchangeably; yet they define a priori very different concepts.

represent the performance of a given segment of the market.

=> focus on representativity

should represent the fair reward expected in exchange for risk

exposures that an investor is willing to accept.

=> focus on efficiency

efficient, but have faced increased criticism on both fronts.

7

Introduction: Beyond Cap-Weighting

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

8

In Search of Representative Indices

Cap-Weighting for Representativity?

when it comes to representing a given segment of the market.

– Market cap weighted indices provide by construction a fair

representation of the stock market;

– In the end, cap-weighting is nothing but an ad-hoc weighting

scheme that achieves some form of representativity.

representation of the underlying economic fundamentals.

Some have argued that they represent well the stock market but

not the economy.

9

In Search of Representative Indices

Fundamental Weighting for Representativity?

firm attributes such as book value, dividends, sales or cash

flows as measures of size.

Arnott (2007): “The Fundamental Index weights companies in

accordance to their footprint in the broad economy […] you wind up

with a portfolio that mirrors the economy”.

represent the economy is actually an open question, if only

because representativity is not a concept that is linked to clear

measures.

10

Introduction: Beyond Cap-Weighting

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

11

Designing Efficient Investment Benchmarks

Efficiency is Related to Diversification

In any case, it is not clear why investors would care about their

portfolios representing the economy.

efficiency: obtaining fair rewards for given risk budgets.

constructing well-diversified portfolios that one can achieve a

fair reward for a given risk exposure.

diversified portfolios, and several approaches have been

developed so as to improve diversification compared to cap-

weighting.

12

Designing Efficient Investment Benchmarks

Cap-Weighting for Efficiency?

portfolios, but that belief is not really based on firm grounds.

of W. Sharpe’s Capital Asset Pricing Model (CAPM):

– No need to gather any information on risk & return parameters

to find optimal portfolios ... because everybody else does!

– When relaxing the highly unrealistic assumptions of the CAPM,

financial theory does not predict that the market portfolio is efficient

(Sharpe (1991), Markowitz (2005)).

– If there are multiple risk factors, the mean-variance optimal portfolio

is no longer CW (Merton (1971), Cochrane (1999)); in a post-CAPM

multi-factor world, CW is just an arbitrary weighting scheme.

13

Designing Efficient Investment Benchmarks

CW leads to High Concentration

concentration: the effective number of stocks in the index is low.

number number

S&P 500 94

NASDAQ 100 37

FTSE 100 (UK) 100 28

The effective number of

stocks is the reciprocal of the FTSE Eurobloc 300 104

Herfindhal index, a measure FTSE Japan 500 103

of portfolio concentration.

Average effective number based on quarterly assessment for the time

period 01/1959 to 12/2008 for the S&P, 01/1975 to 12/2008 for the

NASDAQ, and 12/2002 to 12/2008 for the other indices .

concentration; such simple “de-concentration” strategies do not

aim for “optimality” and are not grounded in portfolio theory. 14

Introduction: Beyond Cap-Weighting

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

15

Ad-Hoc Approach to Well-Diversified Portfolios

Equal Weighting and Equal Risk Contribution

Naïve de-concentration:

– Equal-weighting simply gives the same weight to each of N stocks

in the index (“1/N rule”).

– Equal-weighting is the naïve route to constructing well diversified

portfolios.

Semi-naïve de-concentration:

– Equal risk contribution (ERC) takes into account contribution to risk.

– Contribution to risk is not proportional to dollar contribution.

– Find portfolio weights such that contributions to risk are equal

(Maillard, Roncalli and Teiletche (2010)):

∂σ p ∂σ p

wi = wj

∂wi ∂w j

16 16

Ad-Hoc Approach to Well-Diversified Portfolios

Maximum Diversification Benchmarks/Anti-Benchmark

Statistical de-concentration:

– Define a diversification index and try and maximize it by utilizing the

correlations that drive the magic of diversification: “The whole is

better than the sum of its parts”.

– Maximum Diversification (also known as anti-benchmark) aims at

generating portfolios with the highest possible diversification index

(Choueifaty and Coignard (2008)):

⎛ n ⎞

⎜ ⎟

⎜ ∑ w σ

i i ⎟

DI = Max ⎜ i =1 ⎟

w ⎜ n ⎟

⎜

⎜

∑ wi w j σ ij ⎟

⎟

⎝ i , j =1 ⎠

The weighted average risk (in the numerator) will be high compared

to portfolio risk (in the denominator) and thus DI will be high if the

portfolio weights exploit well the correlations.

17

Introduction: Beyond Cap-Weighting

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

18

Scientific Approach to Well-Diversified Portfolios

Towards the Efficient Frontier

objective through portfolio construction techniques.

to use careful risk and return parameter estimates; practical

approaches to scientific diversification make different choices

regarding the challenge of risk and return estimation.

estimates:

– Suitably designed factor models to mitigate the curse of

dimensionality (see also statistical shrinkage techniques).

– Accounting for non-stationarity: e.g., GARCH and Regime Switching

models.

expected return estimation (Merton (1980)).

19 19

Scientific Approach to Well-Diversified Portfolios

GMV vs. MSR

Return Ratio (MSR) Portfolio

Global

Minimum

Variance

(GMV)

Portfolio ●

●

Volatility

The MSR provides the highest reward per unit of portfolio volatility:

needed optimization inputs are expected returns, correlations and

volatilities.

The GMV provides the lowest possible portfolio volatility: needed

optimization inputs are correlations and volatilities. 20

Scientific Approach to Well-Diversified Portfolios

Minimum Variance Benchmarks (GMV)

covariance matrix, but not about estimating expected return

parameters, the global minimum variance (GMV) benchmark is the

way to go (e.g., Amenc and Martellini (2003)).

volatility portfolio but also a low 16

Efficient frontier

Tangency line

performance portfolio: ex-ante, 14

MSR

MSR+cash is better than GMV. 12

MSR + cash

10

GMV

stocks, with a Sharpe ratio lower 2

0 5 10 15 20 25

(2007)). Annualized volatility

21 21

Scientific Approach to Well-Diversified Portfolios

Efficient Indexation (MSR)

Indexation exploits information on the covariance matrix of

stock returns; the approach uses suitably designed factor

models to mitigate the curse of dimensionality.

useless, all hope on expected returns estimation is not lost!

should be positively related to risk parameters (risk-return

tradeoff ).

through a stock’s riskiness.

22

Scientific Approach to Well-Diversified Portfolios

On the Risk-Return Relationship

risk/return relationship:

– Systematic risk is rewarded (APT);

– Specific risk is also rewarded (Merton (1987)) (*);

– Total volatility (model-free) should therefore be rewarded;

– Higher moment risk is also rewarded (many references).

of diversification is about mixing high-risk-and-therefore-high-

return stocks in a smart way so as to generate low risk portfolios!

23

(*) See also Barberis and Huang (2001) Malkiel and Yu (2002), Boyle, Garlappi, Uppal and Wang (2009) .

Scientific Approach to Well-Diversified Portfolios

iv Puzzle – VW Portfolios over Short Horizons

Value Weighted Portfolios: Short Horizon (iVol)

25.0%

•Ang, Hodrick, Xing and Zhang (2006,

2009): “iv puzzle” 20.0%

•12 Month idiosyncratic volatility

15.0%

•1 Month realized return

10.0%

•10 VW Portfolios

•Value Weighted Portfolio returns 5.0%

•Negative Relationship

0.0%

•High-Low returns mainly driven by high 0% 5% 10% 15% 20% 25% 30%

iVol portfolio -5.0%

-10.0%

Average Risk over Cross-Section

Value Weighted Portfolios: Short Horizon (iVol)

1000.00

100.00

Value of 1$ invested in 1964

stocks (extracted from the CRSP data base) are built

1.00 every month after sorting the stocks based on some

64' 67' 70' 73' 76' 79' 82' 85' 88' 91' 94' 97' 00' 03' 06' 09' risk measure, here idiosyncratic volatility w.r.t. FF

0.10

model (calculated using daily data for last 12

months); the returns of each of these portfolios are

0.01

calculated subsequent one-month periods and

0.00 averaged across the portfolio formation date.

Low 2 3 4 5 6 7 8 9 High

Scientific Approach to Well-Diversified Portfolios

No iv Puzzle – EW Portfolios over Short Horizons

Equally Weighted Portfolios: Short Horizon (iVol)

25.0%

• Return reversal : Huang, Liu, Rhee, and Zhang (2009)

• Extreme winners and losers (over the past month) 20.0%

typically have high iVol over the last 1 month

15.0%

• In high iVol portfolios: # past winners is almost equal

to # past losers, but average weight of past winners is 10.0%

substantially larger.

• Short-term return reversal effect: past-month winners 5.0%

• So, VW lowers the portfolio return compared to other 0% 5% 10% 15% 20% 25% 30%

portfolios and EW does not. -5.0%

-10.0%

Average Risk over Cross-Section

Equally Weighted Portfolios: Short Horizon (iVol)

10000.00

Value of 1$ invested in 1964

1000.00

100.00

EW used.

10.00

•Extremely low return of High-Volatility

portfolio disappears.

1.00 •We still do not have a positive relationship.

64' 67' 70' 73' 76' 79' 82' 85' 88' 91' 94' 97' 00' 03' 06' 09'

0.10

Low 2 3 4 5 6 7 8 9 High

Scientific Approach to Well-Diversified Portfolios

What iv Puzzle ? – EW Portfolios over Long Horizons

Equally Weighted Portfolios: Long Horizon (iVol)

30.0%

•Positive risk-return relationship across all 25.0%

portfolios.

20.0%

•Not only the extreme portfolios.

15.0%

•Intuition: long-horizon realized returns are

less susceptible to local events and hence 10.0%

0% 5% 10% 15% 20% 25%

-5.0%

-10.0%

Average Risk over Cross-Section

Equally Weighted Portfolios: Long Horizon (iVol)

10000.00

Value of 1$ invested in 1964

1000.00

100.00 stocks (extracted from the CRSP data base) are built

every month after sorting the stocks based on some

10.00 risk measure, here idiosyncratic volatility w.r.t. FF

model (calculated using daily data for last 12

1.00 months); the returns of each of these portfolios are

64' 67' 70' 73' 76' 79' 82' 85' 88' 91' 94' 97' 00' 03' 06' 09' calculated subsequent 24-months periods and

0.10

averaged across the portfolio formation date.

Low 2 3 4 5 6 7 8 9 High

Scientific Approach to Well-Diversified Portfolios

tv Puzzle – VW Portfolios over Short Horizons

Value Weighted Portfolios: Short Horizon (tVol)

25.0%

•12 Month total volatility

15.0%

•1 Month realized return

10.0%

•10 Portfolios

•Value Weighted Portfolio returns 5.0%

•Negative risk-return relationship

0.0%

• High-Low returns mainly driven by 0% 5% 10% 15% 20% 25% 30%

low tVol portfolio -5.0%

-10.0%

Average Risk over Cross-Section

Value Weighted Portfolios: Short Horizon (tVol)

1000.00

Value of 1$ invested in 1964

100.00

10.00 stocks (extracted from the CRSP data base) are built

every month after sorting the stocks based on some

1.00 risk measure, here total volatility (calculated using

64' 67' 70' 73' 76' 79' 82' 85' 88' 91' 94' 97' 00' 03' 06' 09' daily data for last 12 months); the returns of each of

0.10 these portfolios are calculated subsequent one-

month periods and averaged across the portfolio

0.01 formation date.

Low 2 3 4 5 6 7 8 9 High

Scientific Approach to Well-Diversified Portfolios

No tv Puzzle – EW Portfolios over Short Horizons

Equally Weighted Portfolios: Short Horizon (tVol)

25.0%

Standard Error Bounds

•1 Month realized return 15.0%

•10 Portfolios

10.0%

•Equally Weighted Portfolio returns

5.0%

0.0%

0% 5% 10% 15% 20% 25% 30%

-5.0%

-10.0%

Average Risk over Cross-Section

Equally Weighted Portfolios: Short Horizon (tVol)

1000.00

Value of 1$ invested in 1964

100.00

•Again, Negative relationship disappears

when EW used.

10.00

• Extremely low return of High-Volatility

portfolio disappears.

1.00 •We still do not have a positive relationship.

64' 67' 70' 73' 76' 79' 82' 85' 88' 91' 94' 97' 00' 03' 06' 09'

0.10

Low 2 3 4 5 6 7 8 9 High

Scientific Approach to Well-Diversified Portfolios

What tv Puzzle? – EW Portfolios over Long Horizons

Equally Weighted Portfolios: Long Horizon (tVol)

•12 Month total volatility 30.0%

•10 EW Portfolios

20.0%

•Positive risk-return relationship 15.0%

across all portfolios.

10.0%

•Not only the extreme portfolios.

5.0%

•Results are valid even tVol is

calculated using larger period. 0.0%

0% 5% 10% 15% 20% 25%

-5.0%

-10.0%

Average Risk over Cross-Section

Equally Weighted Portfolios: Long Horizon (tVol)

10000.00

Value of 1$ invested in 1964

1000.00

100.00 stocks (extracted from the CRSP data base) are built

every month after sorting the stocks based on some

10.00 risk measure, here total volatility (calculated using

daily data for last 12 months); the returns of each of

1.00 these portfolios are calculated subsequent 24-month

64' 67' 70' 73' 76' 79' 82' 85' 88' 91' 94' 97' 00' 03' 06' 09' periods and averaged across the portfolio formation

0.10

date.

Low 2 3 4 5 6 7 8 9 High

Scientific Approach to Well-Diversified Portfolios

Downside Risk & Expected Returns

Evidence that stock downside risk is related to expected returns

Zhang (2005) Skewness Skew

Boyer, Mitton and Skewness Skew

Vorkink (2009)

Tang and Shum (2003) Skewness Skew

Ghysels (2009)

Ang et al. (2006) Downside correlation Vol, Skew, Kurt

Huang et al (2009) Value-at-Risk (EVT) Vol, Skew, Kurt

Bali and Cakici (2004) Value-at-Risk Vol,Skew, Kurt

(Historical)

Chen et al. (2009) Semi-deviation Vol, Skew, Kurt

Estrada (2000) Semi-deviation Vol, Skew, Kurt

Scientific Approach to Well-Diversified Portfolios

Total Semi-Deviation – EW Decile Portfolios Long Horizon

Equally Weighted Portfolios: Long Horizon (sem i-deviation)

30.0%

25.0%

•12 Month Total Semi-Deviation

Standard Error Bounds

20.0%

•24 Month realized return

•10 Portfolios 15.0%

5.0%

0.0%

0% 5% 10% 15% 20%

-5.0%

-10.0%

Average Risk over Cross-Section

Equally Weighted Portfolios: Long Horizon (sem i-deviation)

10000.00

Value of 1$ invested in 1964

across all portfolios.

100.00 •Not only the extreme portfolios.

•Results are valid even semi-

10.00

deviation is calculated using larger

period.

1.00

64' 67' 70' 73' 76' 79' 82' 85' 88' 91' 94' 97' 00' 03' 06' 09'

Low 2 3 4 5 6 7 8 9 High

Scientific Approach to Well-Diversified Portfolios

Downside Risk and Expected Returns

80%

Port Low

70% Port 2

Port 3

60% Port 4

Port 5

50% Port 6

Port 7

40% Port 8

Port 9

30% Port High

20%

10%

0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Month after portfolio formation

Ten portfolios containing an equal number of stocks (extracted from the CRSP data base) are built every month after sorting the stocks

based on their semi-deviation (calculated using daily data for last 30 months); the cumulative returns of each of these portfolios are

calculated for various holding periods and averaged across the portfolio formation date.

32

Scientific Approach to Well-Diversified Portfolios

Long-Term Results

Ann.

Ann. std. Sharpe Information Tracking

Index average

Deviation Ratio Ratio Error

return

Efficient Index 11.63% 14.65% 0.41 0.52 4.65%

Cap-weighted 9.23% 15.20% 0.24 0.00 0.00%

Difference (Efficient

2.40% -0.55% 0.17 - -

minus Cap-weighted)

p-value for difference 0.14% 6.04% 0.04% - -

The table shows risk and return statistics portfolios constructed with using the same set of constituents as the cap-weighted S&P 500 index.

Rebalancing is quarterly subject to an optimal control of portfolio turnover (by setting the reoptimisation threshold to 50%). Portfolios are

constructed by maximising the Sharpe ratio given an expected return estimate and a covariance estimate. The expected return estimate is

set to the median total risk of stocks in the same decile when sorting on total risk. The covariance matrix is estimated using an implicit factor

model for stock returns. Weight constraints are set so that each stock's weight is between 1/2N and 2/N, where N is the number of index

constituents. P-values for differences are computed using the paired t-test for the average, the F-test for volatility, and a Jobson-Korkie test

for the Sharpe ratio. The results are based on weekly return data from 01/1959. We use a calibration period of 2 years and rebalance the

portfolio every three months (at the beginning of January, April, July and October).

33

Introduction: Beyond Cap-Weighting

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

34

Conditions for Optimality

Keep it Simple… But Not Too Simple

Each of the aforementioned weighting methods makes different

methodological choices.

portfolio: the tangency (MSR) portfolio.

choices of different index weighting schemes be truly optimal?

assumptions but is important that assumptions also remain

reasonable; if the conditions are too restrictive, we are unlikely to

obtain optimal portfolios.

35

Conditions for Optimality

Assumptions about Parameter Values

The true tangency portfolio is a function of the

(unknown) true parameter values

Expected Optimal

Return Portfolio

●

●●

●

● ●

Cap-weighted index

Volatility

● wˆ MSR = f (μˆ i , σˆ i , ρˆ ij )

Implementable proxies depend on

assumptions about parameter values

36

Conditions for Optimality

Indices aiming at Representativity

Cap-weighting:

– One simply turns to the market, and hope that everyone else has

done a careful job at estimating risk and return parameters and

designing efficient benchmarks so we simply do not have to it

ourselves!

– This would be a very naïve belief in the CAPM.

Fundamental weighting:

– Conditions under which this weighting scheme would be optimal

are not clear.

– As an example, it would be optimal if risk parameters are

identical and expected return is proportional to the four

fundamental variables used for the weighting.

37

Conditions for Optimality

De-Concentration Approaches

Equal-weighting:

– Optimal if and only if one assumes all stocks have the same

expected return and…

– … the same volatility and…

– … the same pairwise correlations!

– Optimal if and only if one assumes all stocks have same

Sharpe ratios and…

– … the same pairwise correlations.

– Optimal if and only if one assumes all stocks have same

Sharpe ratios.

38

Conditions for Optimality

Efficient Frontier Approaches

Minimum Variance:

– Only optimal if one assumes that all stocks have the same

expected returns, hardly a neutral/reasonable choice.

Efficient Indexation:

– Optimal if one assumes that expected returns between stocks

are different, and positively related to downside risk.

39

Introduction: Beyond Cap-Weighting

– Cap-Weighting

– Fundamental Weights

– Ad-Hoc Diversification: De-concentrating Portfolios

– Scientific Diversification: Towards the Efficient Frontier

40

Conclusion

portfolios because they were never meant to be.

While alternative weighting schemes typically improve

performance, they have different objectives and more or less

strong assumptions need to be made before one can

conclude that they are truly optimal portfolios.

Investors – beyond assessing performance – need to

consider whether assumptions and objectives behind each

concept are compatible with their views and needs.

presentation, is that of concept diversification versus concept

selection.

41

References

Amenc, N., F. Goltz, L. Martellini, and P. Retkowsky, 2010, Efficient Indexation: An Alternative to

Cap-Weighted Indices," Journal of Investment Management, forthcoming.

Bali, Turan G., and Nusret Cakici, 2004, Value at Risk and Expected Stock Returns. Financial

Analysts Journal, 60(2), 57-73.

Barberis, N., and M. Huang, 2001, Mental Accounting, Loss Aversion and Individual Stock Returns,

Journal of Finance, 56, 1247-1292.

Barberis, N. and M. Huang, Stocks as lotteries: The implications of probability weighting for

security prices, 2007, working paper.

Boyer, B., and K. Vorkink, 2007, Equilibrium Underdiversification and the Preference for Skewness,

Review of Financial Studies, 20(4), 1255-1288.

Boyer, B., T. Mitton and K. Vorkink, 2009, Expected Idiosyncratic Skewness, Review of Financial

Studies, forthcoming.

Chen, D.H., C.D. Chen, and J. Chen, 2009, Downside risk measures and equity returns in the

NYSE, Applied Economics, 41, 1055-1070.

Connrad, J., R.F. Dittmar and E. Ghysels, Ex Ante Skewness and Expected Stock Returns, 2008,

working paper.

Choueifaty, Y., and Y. Coignard, 2008, Toward Maximum Diversification, The Journal of Portfolio

Management, 35, 1, 40-51.

Cochrane, John H., 2005, Asset Pricing (Revised), Princeton University Press

Estrada, J, 2000, The Cost of Equity in Emerging Markets: A Downside Risk Approach, Emerging

Markets Quarterly, 19-30.

Grinold, Richard C. “Are Benchmark Portfolios Efficient?”, Journal of Portfolio Management, Fall

1992.

42

References

Haugen, R. A., and Baker N. L., “The Efficient Market Inefficiency of Capitalization-weighted Stock

Portfolios”, Journal of Portfolio Management, Spring 1991.

Malkiel, B., and Y. Xu, 2002, Idiosyncratic Risk and Security Returns, working Paper, University of

Texas at Dallas.

Maillard,, S., T. Roncalli and J. Teiletche, 2010, The Properties of Equally Weighted Risk

Contribution, Journal of Portfolio Management.

Markowitz, H. M., “Market efficiency: A Theoretical Distinction and So What?”, Financial Analysts

Journal, September/October 2005.

Merton, Robert, 1987, A Simple Model of Capital Market Equilibrium with Incomplete Information,

Journal of Finance, 42(3).

Schwartz, T., 2000, How to Beat the S&P500 with Portfolio Optimization, DePaul University,

working paper.

Sharpe, W.F., 1991 , “Capital Asset Prices with and without Negative Holdings”, Journal of

Finance, 46.

Tang, Y., and Shum, 2003, The relationships between unsystematic risk, skewness and stock

returns during up and down markets, International Business Review.

Tinic, S., and R. West, 1986, Risk, Return and Equilibrium: A revisit, Journal of Political Economy,

94, 1, 126-147.

Tobin, J., 1958, Liquidity Preference as Behavior Towards Risk, Review of Economic Studies, 67,

65-86.

Zhang, Y., 2005, Individual Skewness and the Cross-Section of Average Stock Returns, Yale

University, working paper.

43

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