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Asset pricing and co-skewness risk: evidence from India

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  • Sushma Vishnani

Abstract

This paper analyses the validity of the three-moment CAPM model in the Indian context. The study is intended to find out whether co-skewness risk is priced in the Indian capital market. To analyse the validity of the three-moment CAPM model in the Indian context, a time period of around 12 years from January 1999 to June 2010 has been chosen. The sample covers 283 companies comprised in BSE-500 index of Bombay Stock Exchange of India. S%P CNX 500 index has been considered as a proxy for the market portfolio. The empirical results of the study confirm the validity of the three-moment CAPM in the Indian capital market and suggest that in addition to systematic standard deviation risk, co-skewness risk is also priced in the Indian capital market when investors price individual securities. The results of the study further show if co-skewness risk is not incorporated in the CAPM model, the traditional CAPM overestimates the expected market premium by 0.30% per month (3.67% per annum compounded annually).

Suggested Citation

  • Sushma Vishnani, 2013. "Asset pricing and co-skewness risk: evidence from India," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 3(3), pages 208-221.
    • Handle: RePEc:ids:afasfa:v:3:y:2013:i:3:p:208-221
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    Cited by:

    1. Dheeraj Misra & Sushma Vishnani & Ankit Mehrotra, 2019. "Four-moment CAPM Model: Evidence from the Indian Stock Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(1_suppl), pages 137-166, April.

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