Forecasting Crashes: Trading Volume, Past Returns and Conditional Skewness in Stock Prices / Joseph Chen, Harrison Hong, Jeremy C. Stein.

Format:

Book

Author/Creator:

Chen, Joseph.

Contributor:

National Bureau of Economic Research.

Hong, Harrison.

Stein, Jeremy C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7687.

NBER working paper series no. w7687

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Forecasting Crashes

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

This paper is an investigation into the determinants of asymmetries in stock returns. We develop a series of cross-sectional regression specifications which attempt to forecast skewness in the daily returns of individual stocks. Negative skewness is most pronounced in stocks that have experienced: 1) an increase in trading volume relative to trend over the prior six months; and 2) positive returns over the prior thirty-six months. The first finding is consistent with the model of Hong and Stein (1999), which predicts that negative asymmetries are more likely to occur when there are large differences of opinion among investors. The latter finding fits with a number of theories, most notably Blanchard and Watson's (1982) rendition of stock-price bubbles. Analogous results also obtain when we attempt to forecast the skewness of the aggregate stock market, though our statistical power in this case is limited.

Notes:

Print version record

May 2000.