We provide a model-free test for asymmetric correlations in which stocks move more often with the market when the market goes down than when it goes up, and also provide such tests for asymmetric betas and covariances. When stocks are sorted by size, book-to-market, and momentum, we find strong evidence of asymmetries for both size and momentum portfolios, but no evidence for book-to-market portfolios. Moreover, we evaluate the economic significance of incorporating asymmetries into investment decisions, and find that they can be of substantial economic importance for an investor with a disappointment aversion (DA) preference as described by Ang, Bekaert, and Liu (2005). [PUBLICATION ABSTRACT]
Finance and Financial Management | Portfolio and Security Analysis
Review of Financial Studies
Oxford University Press
HONG, Yongmiao; TU, Jun; and ZHOU, Guofu.
Asymmetries in Stock Returns: Statistical Tests and Economic Evaluation. (2007). Review of Financial Studies. 20, (5), 1547-1581. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/4574