Negative Skewness Coefficient
factor.formula
Negative Skewness Coefficient NCSKEW:
in:
- :
is the return of stock i at time t, usually calculated using the log return or simple return.
- :
is the average return of stock i over the past n trading days, calculated as: $\bar{r_i} = \frac{1}{n} \sum_{t=1}^{n} r_{it}$.
- :
The number of trading days in the Lookback Period, which indicates the length of the historical return observation period used to calculate the skewness. Typically, this value is set to 20 trading days, but can be adjusted based on specific trading strategies or backtesting requirements. Smaller n values may be more sensitive to short-term fluctuations, while larger n values may be smoother.
- :
It means to sum up all historical trading days from t=1 to n.
factor.explanation
The Negative Skewness Coefficient quantifies the degree of skewness of the distribution of asset returns, especially the degree of left skewness. This indicator is mainly used to assess the possibility of large negative returns in the future. In risk management and portfolio construction, the negative skewness coefficient is a key risk factor that helps investors identify and avoid assets with greater potential downside risks. A higher negative skewness coefficient usually means that the left tail of the return distribution is thicker, indicating that the asset is more prone to extreme negative returns. Therefore, stocks with high negative skewness coefficients are generally considered to have a higher "crash risk". When allocating such assets, investors tend to demand a higher risk premium to compensate for their potential large losses.