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Conference Paper: Expected stock return and conditional skewness

TitleExpected stock return and conditional skewness
Authors
KeywordsEquilibrium asset pricing
Conditional skewness
Return predictability
Variance risk premium
Third central moments
Issue Date2011
Citation
The 9th China International Conference in Finance (CICF 2011), Wuhan, China, 4-7 July 2011. How to Cite?
AbstractMotivated by the parsimonious jump-diffusion model of Zhang, Zhao and Chang (2010), we show that the aggregate market returns can be predicted by the conditional skewness of returns and the variance risk premium, a difference between the physical and risk-neutral variance of market returns, even though the variance is supposed to be constant only if jump exists. The magnitude of the predictability is particularly striking at the intermediate quarterly return horizon, even combing other predictor variables, like P/D ratio, the default spread and the consumption-wealth ratio (CAY). We also find that the third central moments are significant in explaining the variance risk premium, which further implies that the potential link between the variance risk premium and the excess market return is the third central moments, not the skewness.
Persistent Identifierhttp://hdl.handle.net/10722/145618

 

DC FieldValueLanguage
dc.contributor.authorChang, ECen_US
dc.contributor.authorZhang, Jen_US
dc.contributor.authorZhao, Hen_US
dc.date.accessioned2012-02-28T01:58:29Z-
dc.date.available2012-02-28T01:58:29Z-
dc.date.issued2011en_US
dc.identifier.citationThe 9th China International Conference in Finance (CICF 2011), Wuhan, China, 4-7 July 2011.en_US
dc.identifier.urihttp://hdl.handle.net/10722/145618-
dc.description.abstractMotivated by the parsimonious jump-diffusion model of Zhang, Zhao and Chang (2010), we show that the aggregate market returns can be predicted by the conditional skewness of returns and the variance risk premium, a difference between the physical and risk-neutral variance of market returns, even though the variance is supposed to be constant only if jump exists. The magnitude of the predictability is particularly striking at the intermediate quarterly return horizon, even combing other predictor variables, like P/D ratio, the default spread and the consumption-wealth ratio (CAY). We also find that the third central moments are significant in explaining the variance risk premium, which further implies that the potential link between the variance risk premium and the excess market return is the third central moments, not the skewness.-
dc.languageengen_US
dc.relation.ispartofChina International Conference in Finance, CICF 2011en_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectEquilibrium asset pricing-
dc.subjectConditional skewness-
dc.subjectReturn predictability-
dc.subjectVariance risk premium-
dc.subjectThird central moments-
dc.titleExpected stock return and conditional skewnessen_US
dc.typeConference_Paperen_US
dc.identifier.emailChang, EC: ecchang@business.hku.hken_US
dc.identifier.emailZhang, J: jinzhang@hku.hken_US
dc.identifier.emailZhao, H: hmzhao@hku.hken_US
dc.identifier.authorityChang, EC=rp01050en_US
dc.identifier.authorityZhang, J=rp01125en_US
dc.description.naturepostprint-
dc.identifier.hkuros198759en_US
dc.description.otherThe 9th China International Conference in Finance (CICF 2011), Wuhan, China, 4-7 July 2011.-

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