Heterogeneous Beliefs And Risk Neutral Skewness

conglomerate Beliefs and Risk Neutral Skewness Geoffrey C. Friesen* College of Business Administration, 237 CBA University of atomic number 10 Lincoln, NE 68588-0490 gfriesen2@unl.edu (402) 472-2334 Yi Zhang College of Business Prairie View A&M University P.O. lash 519, MS 2310 Prairie View, TX 77446 yizhang@pvamu.edu (936) 261-9219 Thomas S. Zorn College of Business Administration, 231 CBA University of Nebraska Lincoln, NE 68588-0490 tzorn1@unl.edu (402) 472-6049 * synonymic author electronic model available at: http://ssrn.com/ swipe=1930365 Heterogeneous Beliefs and Risk Neutral Skewness Abstract This essay tests whether investor judgement differences reach the cross-sectional variation of risk-neutral lopsidedness, using selective information on firm-level stock alternatives traded on the CBOE from 2003 to 2006. Using well cognise proxies for heterogeneous beliefs, we find that stocks with greater belief differences have more(prenominal) blackb all skews, even after(prenominal) controlling for systematic risk and other firm-level variables know to affect skewness. This result also goes beyond the net damage gouge hypothesis suggested by Bollen and Whaley (2004). Factor analysis identifies possible variables link to systematic risk and belief differences. The belief agentive role explains more variation in the risk-neutral density than the risk-based factor. Our results suggest that belief differences may be one of the unexplained firmspecific components affecting skewness draw in Dennis and Mayhew (2002). *We thank John Geppert, Richard DeFusco, Manferd Peterson, Kathy Farrell, Donna Dudney, Emre Unlu, Tisha Friesen and seminar participants at the University of Nebraska, the 2008 FMA yearly Meeting, the justice and the editor for helpful comments and suggestions. 1 Electronic copy available at: http://ssrn.com/abstract=1930365 I. Introduction Under no-arbitrage assumptions, the expenditure of an option equals the expected payoff under a risk-neu! tral fortune distribution, discounted at...If you sine qua non to get a full essay, order it on our website: OrderEssay.net

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