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Testing Asset Pricing Model with Coskweness

Author

Listed:
  • Giovanni Urga
  • Giovanni Barone Adesi
  • Patrick Gagliardini

Abstract

In this paper we investigate portfolio coskewness using a quadratic market model as return generating process. It is shown that portfolios of small (large) firms have negative (positive) coskewness with market. An asset pricing model including coskewness is tested through the restrictions it imposes on the return generating process. We find evidence of an additional component in portfolios expected excess returns, which is not explained by neither covariance nor coskewness with the market. However, this unexplained component is constant across portfolios in our sample, and modest in magnitude. We investigate the implications of erroneously neglecting coskewness for testing asset pricing models, with particular interest for the empirically detected explanatory power of size

Suggested Citation

  • Giovanni Urga & Giovanni Barone Adesi & Patrick Gagliardini, 2004. "Testing Asset Pricing Model with Coskweness," Econometric Society 2004 North American Winter Meetings 491, Econometric Society.
    • Handle: RePEc:ecm:nawm04:491
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    More about this item

    Keywords

    Coskwness; Asset Pricing; Factor Model; Statistical Tests;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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