NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Forecasting Crashes: Trading Volume, Past Returns and Conditional Skewness in Stock Prices

Joseph Chen, Harrison Hong, Jeremy C. Stein

NBER Working Paper No. 7687
Issued in May 2000
NBER Program(s):   AP   CF

This paper is an investigation into the determinants of asymmetries in stock returns. We develop a series of cross-sectional regression specifications which attempt to forecast skewness in the daily returns of individual stocks. Negative skewness is most pronounced in stocks that have experienced: 1) an increase in trading volume relative to trend over the prior six months; and 2) positive returns over the prior thirty-six months. The first finding is consistent with the model of Hong and Stein (1999), which predicts that negative asymmetries are more likely to occur when there are large differences of opinion among investors. The latter finding fits with a number of theories, most notably Blanchard and Watson's (1982) rendition of stock-price bubbles. Analogous results also obtain when we attempt to forecast the skewness of the aggregate stock market, though our statistical power in this case is limited.

download in pdf format
   (144 K)

email paper

This paper is available as PDF (144 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Chen, Joseph, Harrison Hong and Jeremy C. Stein. "Forecasting Crashes: Trading Volume, Past Returns, And Conditional Shewness In Stock Prices," Journal of Financial Economics, 2001, v61(3,Sep), 345-381.

Users who downloaded this paper also downloaded these:
Hong and Stein w6324 A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
Hong and Stein w7376 Differences of Opinion, Rational Arbitrage and Market Crashes
Blanchard and Watson w0945 Bubbles, Rational Expectations and Financial Markets
Leahy and Whited w4986 The Effect of Uncertainty on Investment: Some Stylized Facts
Balat, Brambilla, and Porto w13395 Realizing the Gains From Trade: Export Crops, Marketing Costs, and Poverty
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us