tag:blogger.com,1999:blog-7905515.post2885127074909489979..comments2017-04-21T13:09:39.552-05:00Comments on Falkenblog: Brown Bears and GrizzliesEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-7905515.post-37436456886422787182010-08-10T09:14:16.221-05:002010-08-10T09:14:16.221-05:00Pim: I get the first argument. As to the second, ...Pim: I get the first argument. As to the second, is your argument that empirically the skewness premium is too low to explain the puzzles, or that theoretically based on some assumptions about how skew and variance relate?Eric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-19426223403104372262010-08-10T08:10:43.016-05:002010-08-10T08:10:43.016-05:00In theory systematic volatility carries a positive...In theory systematic volatility carries a positive premium and systematic skewness carries a negative premium. If you really like positive skewness a lot, then you do not diversify and hence the market is not the equilibrium anymore... In the paper (available on SSRN) an upper bound on the skewness premium is estimated. This skewness premium is too low (and co-skewness not stable enough) to explain the many existing asset pricing puzzles. <br />http://papers.ssrn.com/sol3/papers.cfm?abstract_id=411660Pimnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-38714992214953712352010-08-09T11:02:15.384-05:002010-08-09T11:02:15.384-05:00dan: that's my point, that a skew-volatility m...dan: that's my point, that a skew-volatility model would be ambiguous.Eric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-6264591918488457342010-08-09T09:15:18.024-05:002010-08-09T09:15:18.024-05:00"then the question would always be, is this o..."then the question would always be, is this one of those high skewness-high volatility assets that people like because of its skewness, or don't like because of its volatility? Skewness are volatility are positively correlated. I guess analysts should love it because it explains everything without obviously saying so "<br /><br /><br /><br />This doesn't make sense. Disliking vol and liking rt skew lead to exact opposite conclusions. If you dislike vol, you' have high returns, if you like skew you'll have low returns. This is exactly the type of situation analysts would not like. <br /><br />It would be interesting to look at returns of stocks double sorted on both vol and skew.dannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-26461580896353576472010-08-08T22:05:38.955-05:002010-08-08T22:05:38.955-05:00Did you see the Penn & Teller episode on self ...Did you see the Penn & Teller episode on <a href="http://www.sho.com/site/video/brightcove/series/title.do?bcpid=1305032885&bclid=309046302001" rel="nofollow">self esteem</a>?Davehttp://steamcatapult.com/noreply@blogger.com