The cross-section of stock returns has substantial exposure to risk captured by higher moments in market returns. The resulting time series of factors are thus genuinely conditional and forward-looking. Stocks with high sensitivities to innovations in implied market volatility and skewness exhibit low returns on average, whereas those with high sensitivities to innovations in implied market kurtosis exhibit somewhat higher returns on average.

The results on market skewness risk are robust to various permutations of the empirical setup. The estimated premium for bearing market skewness risk is between This market skewness risk premium is economically significant and cannot be explained by other common risk factors such as the market excess return or the size, book-to-market, momentum, and market volatility factors, or by firm characteristics.

Using ICAPM intuition, the negative price of market skewness risk indicates that it is a state variable that negatively affects the future investment opportunity set.

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Please be patient as the files may be large. Related research [Other version s available] Keywords: Other versions of this item: Find related papers by JEL classification: G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates References References listed on IDEAS Please report citation or reference errors toorif you are the registered author of the cited work, log in to your RePEc Author Service profileclick on "citations" and make appropriate adjustments.: Campbell, John Y, Kimball, Miles S, Theory and Evidence ," Review of Financial StudiesSociety for Financial Studies, vol.

Reconciling Evidence from Spot and Option Prices ," Journal of FinanceAmerican Finance Association, vol. Pricing the Short-Run and Long-Run Components of Market Risk ," Journal super system forex FinanceAmerican Finance Association, vol. Carhart, Mark M, A Note ," Journal of FinanceAmerican Finance Association, vol.

Reconciling the Evidence on Firm Versus Aggregate Returns ," Review of Financial StudiesSociety for Financial Studies, vol.

Option Implied Volatility, Skewness, and Kurtosis and the Cross-Section of Expected Stock Returns by Turan G. Bali, Jianfeng Hu, Scott Murray :: SSRN

Reconciling the Evidence on Firm versus Aggregate Returns ," CEPR Discussion PapersC. Empirical Tests ," Journal of Political EconomyUniversity of Chicago Press, vol. Evidence from Futures Options ," Journal of FinanceAmerican Finance Association, vol. An Empirical Test ," The Financial ReviewEastern Finance Association, vol.

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Market Skewness Risk and the Cross-Section of Stock Returns

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Chang, Bo Young McGill University Christoffersen, Peter McGill University and Copenhagen Business School Jacobs, Kris University of Houston and University of McGill. Paper provided by University of Pennsylvania, Wharton School, Weiss Center in its series Working Papers with number HTML HTML with abstract plain text plain text with abstract BibTeX RIS EndNote, RefMan, ProCite ReDIF JSON in new window.

Market Skewness Risk and the Cross-Section of Stock Returns by Bo Young Chang, Peter Christoffersen, Kris Jacobs :: SSRN

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