Heterogeneous Beliefs And Risk Neutral Skewness

conglomerate Beliefs and Risk Neutral Skewness Geoffrey C. Friesen* College of Business Administration, 237 CBA University of northeastward Lincoln, NE 68588-0490 gfriesen2@unl.edu (402) 472-2334 Yi Zhang College of Business Prairie View A&M University P.O. loge 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 * tally author electronic likeness available at: http://ssrn.com/ cabbage=1930365 Heterogeneous Beliefs and Risk Neutral Skewness Abstract This national tests whether investor intuitive feeling differences reach the cross-sectional variation of risk-neutral skewness, using selective information on firm-level stock alternatives traded on the CBOE from 2003 to 2006. Using well know proxies for heterogeneous beliefs, we find that stocks with greater belief differences have more(prenominal) preju dicial skews, even after(prenominal) controlling for systematic risk and other firm-level variables cognize to affect skewness. This result also goes beyond the net scathe gouge hypothesis suggested by Bollen and Whaley (2004). Factor analysis identifies potential variables link to systematic risk and belief differences.

The belief component part 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 Fr iesen and seminar participants at the Univer! sity of Nebraska, the 2008 FMA yearbook 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 toll of an option equals the expected payoff under a risk-neutral hazard distribution, discounted at...If you sine qua non to get a full essay, order it on our website: OrderEssay.net

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