Testing Asset Pricing Models in Emerging Markets: An Examination of Higher Order Co-Moments and Alternative Factor Models
AbstractFor emerging market returns there is strong evidence that the departure from normality is primarily driven by kurtosis and not skewness. This paper investigates the empirical validity of a return generating process that includes quadratic and cubic market returns as factors of pricing for an emerging market. Following Barone-Adesi et al. (2004) a multivariate test of a three-moment pricing model is developed. The empirical evidence in the market returns support the stylized facts typical for an emerging market and reveal that any return generating process that includes only a quadratic term (coskewness) may be misspecified. However comparison of higher order market return factors with Fama French factors indicates that while risk exposure to these higher order co-moments factors especially cokurtosis is important the co-moments do not possess sufficient explanatory power to render Fama French factor redundant.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 25020.
Date of creation: Oct 2007
Date of revision: Oct 2007
Higher Order Co-Moments; Asset Pricing; Emerging Markets;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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