The negative news threshold—An explanation for negative skewness in stock returns

Abstract

A vast literature documents negative skewness in stock index return distributions on several markets. We approach the issue of negative skewness from a different angle than in previous studies by combining the Trueman (1997) model of management disclosure practices with symmetric market responses in order to explain negative skewness in stock returns. Our empirical tests reveal that returns for days when non-scheduled news are disclosed are the source of negative skewness in stock returns, as predicted. Our findings hence suggest that negative skewness in stock returns is induced by asymmetries in the news disclosure policies of firm management.

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