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China vs. U.S.: is co-skewness risk priced differently?

Author

Listed:
  • Liang Dong
  • Hung Wan Kot
  • Keith S. K. Lam
  • Bo Yu

Abstract

We investigate the role of co-skewness in pricing stock returns in the Chinese and U.S. markets. In both markets, co-skewness is priced with a negative premium. The annualized factor-adjusted co-skewness effect is −7.98% in China and −3.53% in the U.S. The negative co-skewness effect coexists with other higher-moment-related pricing effects. Through two natural experiments in the Chinese and U.S. markets, we find that an improvement in the information environment greatly enhances the co-skewness pricing effect in both markets. Furthermore, we find that the governance structure and the efficiency level are the main determinants of the co-skewness premium in the Chinese market.

Suggested Citation

  • Liang Dong & Hung Wan Kot & Keith S. K. Lam & Bo Yu, 2022. "China vs. U.S.: is co-skewness risk priced differently?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 29(5), pages 1333-1353, September.
    • Handle: RePEc:taf:raaexx:v:29:y:2022:i:5:p:1333-1353
    DOI: 10.1080/16081625.2020.1726189
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