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A Coronavirus Asset Pricing Model: The Role of Skewness

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  • Delis, Manthos
  • Savva, Christos
  • Theodossiou, Panayiotis

Abstract

We study an equilibrium risk and return model to explore the effects of the coronavirus crisis and associated skewness. We derive the moment and equilibrium equations, specifying skew-ness price of risk as an additive component of the effect of variance on mean expected return. We estimate our model using the flexible skewed generalized error distribution, for which we derive the distribution of returns and the likelihood function. Using S&P 500 Index returns from January 1990 to mid-May 2020, our results show that the coronavirus crisis generated the most negative reaction in the skewness price of risk, more negative even than the subprime crisis.

Suggested Citation

  • Delis, Manthos & Savva, Christos & Theodossiou, Panayiotis, 2020. "A Coronavirus Asset Pricing Model: The Role of Skewness," MPRA Paper 100877, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100877
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset pricing; Risk and return; Skewness; Coronavirus crisis; Subprime crisis;
    All these keywords.

    JEL classification:

    • 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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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