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The impact of skew on performance and bias

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  • Dugan, Zachary
  • Greyserman, Alexander

Abstract

In this paper, we explore the relationship between the statistic skew and known behavioral biases. We investigate the impact that skew has on the perception of performance as a function of time, and we show that negative skew artificially improves performance over the short term, while positive skew has the opposite effect. We quantify the relationship between skew and drawdown depth and length, and we show that negative skew increases drawdown depth and length, and that again positive skew does the opposite. Finally, we explore the relationship between skew, volatility, and drawdown, and we show that negative skew amplifies the increase that volatility causes in drawdown depth and length, while positive skew has a corresponding dampening effect.

Suggested Citation

  • Dugan, Zachary & Greyserman, Alexander, 2019. "The impact of skew on performance and bias," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 232-238.
    • Handle: RePEc:eee:beexfi:v:22:y:2019:i:c:p:232-238
    DOI: 10.1016/j.jbef.2019.03.008
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    References listed on IDEAS

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    2. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    3. Patricia Tovar, 2004. "The Effects of Loss Aversion on Trade Policy and the Anti-Trade Bias Puzzle," Econometric Society 2004 North American Summer Meetings 499, Econometric Society.
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