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Higher‐Order Systematic Comoments and Asset Pricing: New Evidence

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  • Duong Nguyen
  • Tribhuvan N. Puri

Abstract

We provide evidence supporting Rubinstein's (1973) model that if returns are not normal, measuring risk requires more than just measuring covariance. Higher‐order systematic comoments should be important to risk‐averse investors who are concerned about the extreme outcomes of their investments. Our paper shows that the Fama‐French factors [SMB (return on small stocks less the return on big stocks), HML (return on high book‐to‐market stocks less the return on low book‐to‐market stocks)] as well as the momentum and market liquidity factors can be explained by the higher‐order systematic comoments, and it lends support to the traditional covariance risk‐based theory without having to resort to behavior assumptions.

Suggested Citation

  • Duong Nguyen & Tribhuvan N. Puri, 2009. "Higher‐Order Systematic Comoments and Asset Pricing: New Evidence," The Financial Review, Eastern Finance Association, vol. 44(3), pages 345-369, August.
  • Handle: RePEc:bla:finrev:v:44:y:2009:i:3:p:345-369
    DOI: 10.1111/j.1540-6288.2009.00221.x
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    Cited by:

    1. Huber, Jürgen & Kirchler, Michael & Stefan, Matthias, 2014. "Experimental evidence on varying uncertainty and skewness in laboratory double-auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 798-809.
    2. Ahmed, Walid M.A. & Al Mafrachi, Mustafa, 2021. "Do higher-order realized moments matter for cryptocurrency returns?," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 483-499.
    3. Cui, Jinxin & Maghyereh, Aktham, 2023. "Higher-order moment risk connectedness and optimal investment strategies between international oil and commodity futures markets: Insights from the COVID-19 pandemic and Russia-Ukraine conflict," International Review of Financial Analysis, Elsevier, vol. 86(C).
    4. Jinxin Cui & Aktham Maghyereh, 2022. "Time–frequency co-movement and risk connectedness among cryptocurrencies: new evidence from the higher-order moments before and during the COVID-19 pandemic," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-56, December.
    5. You, Leyuan & Daigler, Robert T., 2010. "Is international diversification really beneficial?," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 163-173, January.
    6. Cui, Jinxin & Maghyereh, Aktham, 2023. "Time-frequency dependence and connectedness among global oil markets: Fresh evidence from higher-order moment perspective," Journal of Commodity Markets, Elsevier, vol. 30(C).
    7. Lambert, M. & Hübner, G., 2013. "Comoment risk and stock returns," Journal of Empirical Finance, Elsevier, vol. 23(C), pages 191-205.
    8. J. Davies & Jonathan Fletcher & Andrew Marshall, 2015. "Testing index-based models in U.K. stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 45(2), pages 337-362, August.

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