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Market volatility and skewness risks in China

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  • Zhen, Fang

Abstract

We examine the pricing of the risk-neutral market volatility and skewness risks in the cross-section of stocks in China. We find that stocks with high exposures to innovations in volatility or skewness exhibit low expected returns. Market volatility is economically important and commands a notably high risk premium. Compared to the US, innovations in volatility (skewness) exhibit less (more) negative contemporaneous correlation with market returns. These relationships provide a hedging explanation for our results. The negative risk premium of volatility is robust to empirical settings, whereas that of skewness is related to market risk and sensitive to testing methods.

Suggested Citation

  • Zhen, Fang, 2025. "Market volatility and skewness risks in China," International Review of Economics & Finance, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:reveco:v:99:y:2025:i:c:s1059056025001315
    DOI: 10.1016/j.iref.2025.103968
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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