Conditional coskewness and asset pricing

Smith, Daniel R. (2007) Conditional coskewness and asset pricing. Journal of Empirical Finance, 14(1), p. 91.

View at publisher


We explore the empirical usefulness of conditional coskewness to explain the cross-section of equity returns. We find that coskewness is an important determinant of the returns to equity, and that the pricing relationship varies through time. In particular we find that when the conditional market skewness is positive investors are willing to sacrifice 7.87% annually per unit of gamma (a standardized measure of coskewness risk) while they only demand a premium of 1.80% when the market is negatively skewed. A similar picture emerges from the coskewness factor of Harvey and Siddique (Harvey, C., Siddique, A., 2000a. Conditional skewness in asset pricing models tests. Journal of Finance 65, 1263–1295.) (a portfolio that is long stocks with small coskewness with the market and short high coskewness stocks) which earns 5.00% annually when the market is positively skewed but only 2.81% when the market is negatively skewed. The conditional two-moment CAPM and a conditional Fama and French (Fama, E., French, K., 1992. The cross-section of expected returns. Journal of Finance 47,427465.) three-factor model are rejected, but a model which includes coskewness is not rejected by the data. The model also passes a structural break test which many existing asset pricing models fail.

Impact and interest:

23 citations in Scopus
Search Google Scholar™

Citation counts are sourced monthly from Scopus and Web of Science® citation databases.

These databases contain citations from different subsets of available publications and different time periods and thus the citation count from each is usually different. Some works are not in either database and no count is displayed. Scopus includes citations from articles published in 1996 onwards, and Web of Science® generally from 1980 onwards.

Citations counts from the Google Scholar™ indexing service can be viewed at the linked Google Scholar™ search.

ID Code: 32936
Item Type: Journal Article
Refereed: Yes
Keywords: GMM; Asset pricing; , Conditional; , Coskewness; , Pricing kernel, Nonlinear;
DOI: 10.1016/j.jempfin.2006.04.004
ISSN: 09275398
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Deposited On: 24 Jun 2010 05:56
Last Modified: 29 Feb 2012 13:56

Export: EndNote | Dublin Core | BibTeX

Repository Staff Only: item control page