Are Stocks Lotteries? The Shape of Distribution Matters

  • Adam Zaremba
  • Jacob “Koby” Shemer


As shown by studies, the shape of return distributions can also predict future returns. Investors, to some extent, treat stocks as lotteries that can reward them with a substantial fortune. In consequence, the right-skewed distributions, where there is a large chance of exceptionally high returns, tend to disappoint in the end. The impact of skewness can be measured in various ways: from very sophisticated measures, like co-skewness or idiosyncratic skewness, to plain and simple ones, like maximum daily return over the previous month. All of these measures can serve as powerful predictors of future returns. The authors reviewed the skewness-based strategies, providing both explanations and evidence, and re-examined them in 24 international equity markets.


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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Adam Zaremba
    • 1
  • Jacob “Koby” Shemer
    • 2
  1. 1.Poznan University of Economics and BusinessPoznanPoland
  2. 2.AlphaBetaTel AvivIsrael

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