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Systematic skewness in asset pricing: an empirical examination of the Taiwan stock market

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  • Bing-Huei Lin
  • Jerry Wang
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    Abstract

    This paper is an empirical study of asset pricing with the systematic skewness in the pricing model. We adopt the Fama-French three-factor model, which incorporates the firm-size and book-to-market ratio in asset pricing as the base case, and then includes the skewness factor used by Harvey and Siddique in the pricing model. The evidence shows that systematic skewness is significant and might be important in asset pricing when portfolios are formed by industry, firm-size, book-to-market, or momentum strategies. When portfolios are constructed by momentum or coskewness strategies, lower momentum, or lower coskewness portfolios exhibit higher skewness and higher kurtosis. When portfolios are grouped by excess returns, it is seen that the average excess return is positively correlated with size and coskewness. Thus the systematic skewness is closely related to firm size. And the relationship between systematic skewness and excess return is obscured by the reverse firm-size effect.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840310001628044
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 35 (2003)
    Issue (Month): 17 ()
    Pages: 1877-1887

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    Handle: RePEc:taf:applec:v:35:y:2003:i:17:p:1877-1887

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    Web page: http://www.tandfonline.com/RAEC20

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    1. Fang, Hsing & Lai, Tsong-Yue, 1997. "Co-Kurtosis and Capital Asset Pricing," The Financial Review, Eastern Finance Association, vol. 32(2), pages 293-307, May.
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    3. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
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    15. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
    16. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    17. Chunhachinda, Pornchai & Dandapani, Krishnan & Hamid, Shahid & Prakash, Arun J., 1997. "Portfolio selection and skewness: Evidence from international stock markets," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 143-167, February.
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    19. Lee, Ahyee & Moy, Ronald L. & Lee, Cheng F., 1996. "A multivariate test of the covariance-co-skewness restriction for the three moment CAPM," Journal of Economics and Business, Elsevier, vol. 48(5), pages 515-523, December.
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    Cited by:
    1. Robert Rutledge & Zhaohui Zhang & Khondkar Karim, 2008. "Is There a Size Effect in the Pricing of Stocks in the Chinese Stock Markets?: The Case of Bull Versus Bear Markets," Asia-Pacific Financial Markets, Springer, vol. 15(2), pages 117-133, June.

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