Can systematic skewness factors predict future interest rates: Evidence from China

Xinyao Liang; Yichen Sun

doi:10.1371/journal.pone.0334345

Peer Review History

Original SubmissionSeptember 26, 2025
5 Nov 2025 Decision Letter - Ricky Chee Jiun Chia, Editor Dear Dr. Liang, Thank you for submitting your manuscript to PLOS ONE. After careful consideration, we feel that it has merit but does not fully meet PLOS ONE’s publication criteria as it currently stands. Therefore, we invite you to submit a revised version of the manuscript that addresses the points raised during the review process. Please submit your revised manuscript by Dec 20 2025 11:59PM. If you will need more time than this to complete your revisions, please reply to this message or contact the journal office at plosone@plos.org . When you're ready to submit your revision, log on to https://www.editorialmanager.com/pone/ and select the 'Submissions Needing Revision' folder to locate your manuscript file. A rebuttal letter that responds to each point raised by the academic editor and reviewer(s). You should upload this letter as a separate file labeled 'Response to Reviewers'. 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Please include captions for your Supporting Information files at the end of your manuscript, and update any in-text citations to match accordingly. Please see our Supporting Information guidelines for more information: http://journals.plos.org/plosone/s/supporting-information.-->--> -->-->5. If the reviewer comments include a recommendation to cite specific previously published works, please review and evaluate these publications to determine whether they are relevant and should be cited. There is no requirement to cite these works unless the editor has indicated otherwise. ?> [Note: HTML markup is below. Please do not edit.] Reviewers' comments: Comments to the Author 1. Is the manuscript technically sound, and do the data support the conclusions? Reviewer #1: Yes Reviewer #2: Yes ******** 2. Has the statistical analysis been performed appropriately and rigorously? -->?> Reviewer #1: Yes Reviewer #2: Yes ****** 3. Have the authors made all data underlying the findings in their manuscript fully available??> The PLOS Data policy Reviewer #1: Yes Reviewer #2: No ****** 4. Is the manuscript presented in an intelligible fashion and written in standard English??> Reviewer #1: Yes Reviewer #2: Yes ****** Reviewer #1: The manuscript provides an original empirical contribution at the intersection of asset-pricing theories and macro-finance. It convincingly connects systematic skewness preferences of investors with future interest rate changes, offering a macroeconomic rationale for pricing effects related to systematic skewness. a) Original conceptual framing - the authors combine behavioural-finance intuition with macroeconomic forecasting. b) Rigorous empirical strategy - the authors use three independent measures of skewness (Cos, BM2, BHS). c) Control variables - consider a extensive list of control variables, on the macroeconomic side, we have M2, GDP, CPI, loans and US rates; in addition, the authors included a complete set of classic Fama–French factors. d) Heterogeneity aspects - the authors analyse bull and bear market effects, which creates considerable interpretive richness. e) Statistical attributes - Methods such as Newey–West adjustments are appropriate, all specifications suggest a similarly Positive Features. 1. Theoretical aspect: Offer a clearer equilibrium mechanism related to systematic skewness and interest-rate changes, considering shedding light on this through a simple model or cost of risk-hedging mechanisms. 2. Causality implication: the reverse-causality issue impacts practical use and should be presented or examined. One strategy is to offer instrumental-variable estimation or some method of Granger-causality to asses the direction, whether intentional or implicit. 3. Economic significance: Quantify improvement in forecasting ability to be able to weigh against a baseline state-space model (for example, AR, VAR, Taylor rule). 4. Improvements from sample results are good and need some discussion regarding potential bias from investors' preference towards small-cap stocks' exclusion. Identify sub-period analysis as a means to capture changing monetary regimes within China. 5. Better presentation-in terms of congested and extensive tables; perhaps add a schematic from the author's insights for the reader to absorb the conceptual relationships as the state of the literature creates large gaps. 6. Policy relevance: In further discussing and offering text of implications from monetary-policy signalling, portfolio management, and/or in monitoring market-based expectations. The paper presents strong methodological aspects, as well as, strong indications that the paper holds theoretical potential as it relates to behavioural-finance applications in both decision-making and policy. The pdf merits consideration for publication status upon noticeable revisions. The paper should make a suitable learning contribution to scholarly articles and apply useful theories to finance. Discovered relationships refining the forecasting and practical implications aim to be substantive through careful revision. Reviewer #2: This study meaningfully advances asset pricing research by integrating systematic skewness with macroeconomic expectations theory. It contributes both empirically and conceptually, offering a nuanced explanation for skewness-based pricing effects that goes beyond behavioural narratives. Future refinements focusing on causal inference and broader cross-market comparisons would elevate its impact further. The analysis incorporates nearly 3,700 stocks over a 25-year span, employs rigorous data filters, and conducts separate investigations for bull and bear market cycles, offering insights into behavioural heterogeneity across regimes 1. the study establishes correlation between systematic skewness factors and future interest rates but should further address potential endogeneity or reverse causality 2. Detailed explanations of regression frameworks, control variables, and robustness checks should be provided 3. It would be valuable to discuss whether the results hold across different sample periods, especially considering China’s structural monetary shifts and policy-driven market influences. 4. Regression outputs are well-detailed, but further clarity regarding the selection/lag structure of control variables and additional robustness checks could improve reader confidence. 5. While the theoretical rationale behind investor expectations is plausible, it may benefit from linking to specific macro indicators (e.g., inflation expectations, credit growth) that could mediate the skewness-interest rate relationship. 6. the paper interprets prolonged predictive effects in bear versus bull markets through investor behaviour. Deeper engagement with alternative channels (e.g., policy, liquidity, foreign capital flows) would round out the narrative. 7. Benchmarking results with evidence from developed markets could strengthen the argument for the uniqueness or generalizability of these findings. ****** what does this mean? ). If published, this will include your full peer review and any attached files. If you choose “no”, your identity will remain anonymous but your review may still be made public. Do you want your identity to be public for this peer review? For information about this choice, including consent withdrawal, please see our Privacy Policy Reviewer #1: No Reviewer #2: Yes: Dr. Kaustav Aditya, Senior Scientist, ICAR-IASRI, New Delhi ******** [NOTE: If reviewer comments were submitted as an attachment file, they will be attached to this email and accessible via the submission site. Please log into your account, locate the manuscript record, and check for the action link "View Attachments". If this link does not appear, there are no attachment files.] To ensure your figures meet our technical requirements, please review our figure guidelines: https://journals.plos.org/plosone/s/figures You may also use PLOS’s free figure tool, NAAS, to help you prepare publication quality figures: https://journals.plos.org/plosone/s/figures#loc-tools-for-figure-preparation. NAAS will assess whether your figures meet our technical requirements by comparing each figure against our figure specifications. Attachments Attachment Submitted filename: EVALUATION PLOS One Article 2.docx https://doi.org/10.1371/journal.pone.0334345.r001
Revision 1
23 Dec 2025 Author Response Dear Editor, We sincerely appreciate your and all the reviewers’ critiques and valuable feedback. We are fortunate that our manuscript was eventually assigned to these reviewers, as their valuable feedback not only helped us improve the paper but also provided some insightful directions for future research. Please convey our heartfelt thanks to these experts. Based on the feedback received, we have carefully revised the original manuscript. All changes are highlighted in blue text within the revised version. Below, you will find our point-by-point responses to the comments. (At the same time, we have uploaded an attachment titled "Response to Reviewers".) We hope the new version meets your standards, and if any shortcomings remain, please do not hesitate to point them out. We look forward to receiving any response regarding our submission and are pleased to address any further questions or comments you may have. Xinyao Liang Yichen Sun (1) Your Comment: Theoretical Development: While the empirical findings are robust, the theoretical mechanism remains underdeveloped. The paper would benefit from a formal model or more rigorous theoretical framework explaining why systematic skewness factors should predict interest rates beyond the intuitive narrative. What is the equilibrium relationship? How do rational expectations reconcile with the documented patterns? Our revision: Thank you for this suggestion for revision. We completely agree with your perspective. Investors’ hedging activities may trigger market liquidity tensions or asset sell-offs, increasing the vulnerability of the financial system. If such behavior exacerbates systemic risks, the central bank may adjust interest rates (for example, by lowering rates to provide liquidity) to smooth market volatility and maintain financial stability (Drechsler et al., 2021; Bocola and Lorenzoni, 2020). Stocks exhibiting positive systematic skewness, which demonstrate the ability to generate positive returns during market downturns and thus meet investors’ hedging demands (Langlois, 2020; Baltussen et al., 2021), tend to be favored by investors when their hedging demands increase. This preference drives up the prices of these stocks, leading to lower future returns and consequently enhancing the value of the systematic skewness factor. Conversely, when investors’ hedging demands decline, the value of the systematic skewness factor also diminishes. Based on the above reasoning, we define the systematic skewness factors as the return difference between the 30% of stocks with the lowest (typically negative) systematic skewness and the 30% of stocks with the highest (typically positive) systematic skewness, and we employ numerical changes of systematic skewness factors to capture the time-varying nature of investors’ hedging demands. To further elaborate on the theory, we construct a two-period model to illustrate the relationship between investors’ expectations of future interest rates and their hedging demands. This content has been added in Section 3 of the revised manuscript. (2) Your Comment: Endogeneity and Causality: The most significant methodological concern is potential reverse causality. Do systematic skewness factors predict interest rates, or do expectations about interest rates drive systematic skewness preferences? The paper treats predictive regressions as sufficient evidence, but instrumental variable approaches, Granger causality tests, or natural experiments would substantially strengthen causal claims. Current evidence demonstrates correlation, not causation. Our revision: Thank you for this suggestion for revision. We completely agree with your perspective. In Section 5.1 of the revised manuscript, we have supplemented Granger causality tests and instrumental variable tests to strengthen causal inference. (3) Your Comment: Economic Magnitude: The paper reports statistical significance extensively but provides limited discussion of economic significance. What is the practical forecasting improvement over benchmark models? How do the predictive R2 values compare to standard interest rate forecasting models? A comparison with AR models, Taylor rule specifications, or term structure models would contextualize the findings. Our revision: Thank you for this suggestion for revision. We completely agree with your perspective. In Section 5.3 of the revised manuscript, we have added out-of-sample forecasting and comparisons with benchmark models. (4) Your Comment: Sample Selection and Data Concerns: Excluding the smallest 30% of stocks by market capitalization to avoid “shell value” effects is pragmatic but potentially problematic. This could induce selection bias and limit generalizability. Additionally, the paper’s treatment of the 1997-2024 sample period deserves scrutiny - this encompasses multiple regime changes in Chinese monetary policy and market regulation that warrant explicit discussion or subsample analysis. Our revision: Thank you for this suggestion for revision. We completely agree with your perspective. In the revised manuscript, we have adjusted the data sample by no longer excluding the smallest 30% of stocks by market capitalization and have re-reported all empirical results accordingly. These modifications are reflected throughout the empirical findings and are highlighted in blue text. Additionally, in Section 5.2, we divided the sample into bull-market and bear-market phases and separately reported the empirical results for these two subsample tests. Moreover, we also used the 2005 equity division reform in Chinese stock market as a breakpoint, dividing the sample into pre-2005 and post-2005 periods. The empirical results similarly support the research conclusions of this paper. However, given the already substantial length of the manuscript, these findings were not included in the revised version. If required, we would be glad to supplement this part of the empirical results into the revised manuscript. (5) Your Comment: Robustness Checks: The paper lacks several standard robustness tests including alternative forecasting horizons beyond 1-4 months, out-of-sample forecasting performance, and alternative specifications for constructing systematic skewness factors (e.g., different portfolio cutoffs than 30/30). Our revision: Thank you for this suggestion for revision. We completely agree with your perspective. In the revised manuscript, we report the predictive ability of the systematic skewness factor for interest rates up to four months ahead across all empirical tables. For forecasting horizons beyond four months, the systematic skewness factor does not demonstrate significant predictive power for future interest rates, and thus such results are not included in the revision. Additionally, in Sections 5.3 and 5.4, we present out-of-sample forecasting and alternative specifications for constructing systematic skewness factors, respectively. (6) Your Comment: Readability and Presentation: While the paper is well-organized, several tables (especially Tables 3~6) are excessively dense. The addition of graphical summaries, conceptual diagrams, or flowcharts illustrating relationships between skewness, market sentiment, and interest rates would enhance readability and accessibility for a multidisciplinary audience. Our revision: Thank you for this suggestion for revision. We completely agree with your perspective. In the revised manuscript, we have modified the relevant tables and added Figure 1 to illustrate the relationships among skewness, market sentiment, and interest rates. (7) Your Comment: Policy and Practical Implications: The conclusion section could more explicitly articulate the implications for monetary policy, portfolio management, and risk assessment. For instance, how might systematic skewness serve as a market-based indicator of future policy shifts or investor sentiment during liquidity tightening cycles? Our revision: Thank you for this suggestion for revision. We completely agree with your perspective. In the revised manuscript, we have emphasized in multiple sections that when investors’ hedging demand increases, they tend to purchase more stocks with positive systematic skewness, leading to the overvaluation of these stocks, a decline in future returns, and a corresponding rise in the value of the systematic skewness factor. This signal is transmitted through monetary policy and significantly influences future interest rates. Moreover, for both short-term and long-term interest rates, prediction errors based on systematic skewness factors are consistently lower than those from an AR model and the extended Taylor‑rule model proposed by Ma et al. (2025). Systematic skewness can serve as an asymmetric pricing signal in the market for extreme interest rate risks. Its increase often reflects heightened investor anxiety over liquidity tightening, thereby offering central banks a forward-looking sentiment monitoring window independent of traditional economic indicators. Attachments Attachment Submitted filename: Response to Reviewers.docx https://doi.org/10.1371/journal.pone.0334345.r002
11 Jan 2026 Decision Letter - Ricky Chee Jiun Chia, Editor Can Systematic Skewness Factors Predict Future Interest Rates: Evidence from China PONE-D-25-52488R1 Dear Dr. Xinyao Liang, We’re pleased to inform you that your manuscript has been judged scientifically suitable for publication and will be formally accepted for publication once it meets all outstanding technical requirements. Within one week, you’ll receive an e-mail detailing the required amendments. When these have been addressed, you’ll receive a formal acceptance letter and your manuscript will be scheduled for publication. An invoice will be generated when your article is formally accepted. Please note, if your institution has a publishing partnership with PLOS and your article meets the relevant criteria, all or part of your publication costs will be covered. Please make sure your user information is up-to-date by logging into Editorial Manager at Editorial Manager® and clicking the ‘Update My Information' link at the top of the page. For questions related to billing, please contact billing support . If your institution or institutions have a press office, please notify them about your upcoming paper to help maximize its impact. If they’ll be preparing press materials, please inform our press team as soon as possible -- no later than 48 hours after receiving the formal acceptance. Your manuscript will remain under strict press embargo until 2 pm Eastern Time on the date of publication. For more information, please contact onepress@plos.org. Kind regards, Ricky Chee Jiun Chia Academic Editor PLOS One Additional Editor Comments (optional): Reviewers' comments: https://doi.org/10.1371/journal.pone.0334345.r003
Formally Accepted
Acceptance Letter - Ricky Chee Jiun Chia, Editor PONE-D-25-52488R1 PLOS One Dear Dr. Liang, I'm pleased to inform you that your manuscript has been deemed suitable for publication in PLOS One. Congratulations! Your manuscript is now being handed over to our production team. At this stage, our production department will prepare your paper for publication. This includes ensuring the following: * All references, tables, and figures are properly cited * All relevant supporting information is included in the manuscript submission, * There are no issues that prevent the paper from being properly typeset You will receive further instructions from the production team, including instructions on how to review your proof when it is ready. Please keep in mind that we are working through a large volume of accepted articles, so please give us a few days to review your paper and let you know the next and final steps. Lastly, if your institution or institutions have a press office, please let them know about your upcoming paper now to help maximize its impact. If they'll be preparing press materials, please inform our press team within the next 48 hours. Your manuscript will remain under strict press embargo until 2 pm Eastern Time on the date of publication. For more information, please contact onepress@plos.org. You will receive an invoice from PLOS for your publication fee after your manuscript has reached the completed accept phase. If you receive an email requesting payment before acceptance or for any other service, this may be a phishing scheme. Learn how to identify phishing emails and protect your accounts at https://explore.plos.org/phishing. If we can help with anything else, please email us at customercare@plos.org. Thank you for submitting your work to PLOS ONE and supporting open access. Kind regards, PLOS ONE Editorial Office Staff on behalf of Dr. Ricky Chee Jiun Chia Academic Editor PLOS One https://doi.org/10.1371/journal.pone.0334345.r004

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