Comoment risk and stock returns

[en] We estimate investable comoment equity risk premiums for the US markets. The stock's contribution to the asymmetry and the fat tails of the market portfolio's payoff are priced into a coskewness premium and a cokurtosis premium. We construct zero-investment strategies that are long and short in coskewness and cokurtosis equity risks; we infer from the spread the returns attached to a unit exposure to US equity coskewness and cokurtosis. The coskewness and cokurtosis premiums present positive monthly average returns of 0.27% and 0.14% from January 1959 to December 2011. Comoment risks appear to be significantly priced within the US stock market and display significant explanatory power regarding the US size and book-to-market effects. The premiums do not subsume, but rather complement the empirical capital asset pricing model. Our analysis relies on data collected from CRSP (Chicago Research Center for Security Prices) over December 1955 to December 2011. To our knowledge, the paper is the first to propose investable higher-moment risk factors over such an extensive time period.

Disciplines :

Finance

Author, co-author :

Lambert, Marie ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Analyse financière et finance d'entreprise

Hübner, Georges ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière

Language :

English

Title :

Comoment risk and stock returns

Publication date :

2013

Journal title :

Journal of Empirical Finance

ISSN :

0927-5398

Publisher :

Elsevier Science

Volume :

Pages :

191-205

Peer reviewed :

Peer Reviewed verified by ORBi

Available on ORBi :

since 10 July 2013

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