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An intertemporal CAPM with higher-order moments

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  • Jang, Jeewon
  • Kang, Jangkoo

Abstract

We propose an intertemporal asset pricing model that incorporates both preference for higher-order moments and stochastic investment opportunities and encompasses a wide range of existing models. We provide supporting evidence from the U.S. stock market and find that, not only is systematic skewness negatively priced, an extra return premium is also required for accepting high systematic risk associated with a rise in risk aversion. Our findings suggest that considering both skewness preference and intertemporal hedging demands improves the estimated risk-return trade-off, and that cross-sectional anomalies such as value, momentum, and failure probability puzzles can be partially explained by our model.

Suggested Citation

  • Jang, Jeewon & Kang, Jangkoo, 2017. "An intertemporal CAPM with higher-order moments," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 314-337.
    • Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:314-337
    DOI: 10.1016/j.najef.2017.07.017
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