Distributional asymmetry of loadings on market co-moments
The market coskewness puzzle has occupied the empirical asset pricing research since the third-moment asset pricing model was introduced by Kraus and Litzenberger (1976) and Friend and Westerfield (1980). Using the Fama-French 49 US industry portfolios this paper empirically shows that the loading on market coskewness and market cokurtosis components of higher co-moment asset pricing models are not robust across the outcome of the conditional return distribution. However, for most of the 49 industry portfolios it seems like the loadings on market covariance are very robust, almost constant, across the conditional return distribution. The loadings on market coskewness, on the other hand, are not robust but show a very distinct profile, increasing from negative in the left tail to positive in the right tail, and this profile is surprisingly similar across all the 49 industry portfolios. Finally, the results for the loading on market cokurtosis remain puzzling. The findings imply that separation of bull and bear markets and/or applying discrete regime switching approaches may not be sufficient to fully account for the asymmetric higher market co-moment effects. Furthermore, improvement in adjusted R-squares using higher market co-moments stems from market coskewness and appears only in the tails of the conditional return distribution.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 21 (2011)
Issue (Month): 5 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/intfin|
When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:21:y:2011:i:5:p:851-866. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.