Real Options, Idiosyncratic Skewness, and Diversification

Luca Del Viva, Eero Kasanen, Lenos Trigeorgis

Producció científica: Article en revista indexadaArticle de revisió (sistemàtica)Avaluat per experts

24 Cites (Scopus)

Resum

We show how firm-level real options lead to idiosyncratic skewness in stock returns. We then document empirically that growth option variables are positive and significant determinants of idiosyncratic skewness. The real option impact on skewness is more significant in firms with lottery-type features, small size, high volatility, distressed, low return on assets, and low book-to-market ratio. We also find that expectation on idiosyncratic skewness is associated with lower Sharpe ratios. This suggests investors are willing to sacrifice mean-variance portfolio efficiency for greater skewness deriving from real options. Furthermore, financial flexibility has a positive incremental effect, enhancing the beneficial role of asset flexibility on idiosyncratic skewness.

Idioma originalAnglès
Pàgines (de-a)215-241
Nombre de pàgines27
RevistaJournal of Financial and Quantitative Analysis
Volum52
Número1
DOIs
Estat de la publicacióPublicada - 1 de febr. 2017
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