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Idiosyncratic asymmetry in stock returns: An entropy measure

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  • Chen, Yan
  • Liu, Yakun

Abstract

This study presents an entropy-based approach for measuring the asymmetry of stock returns. To apply this approach, we use the Bootstrap method, in which our asymmetry measure exhibits a significantly enhanced ability to detect asymmetry compared with skewness. Moreover, our empirical findings reveal that stocks characterized by higher upside asymmetries, as determined by our innovative entropy measure, exhibit lower average returns across a cross-section of stocks. This finding supports the conclusions in Han et al. (2018). Conversely, when employing the three-moment skewness measure, the relationship between asymmetry and stock returns remains inconclusive in the Chinese market.

Suggested Citation

  • Chen, Yan & Liu, Yakun, 2024. "Idiosyncratic asymmetry in stock returns: An entropy measure," Finance Research Letters, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324003477
    DOI: 10.1016/j.frl.2024.105317
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    References listed on IDEAS

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    More about this item

    Keywords

    Entropy; Asymmetry; Skewness; Cross-sectional returns;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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