Time-varying risk attitude and conditional skewness. (English) Zbl 1406.91202

Summary: Much literature finds that the skewness in the return distribution is negatively correlated with the risk premium coefficient, and speculation is the reason for the skewness in the return distribution. As further research, this paper, first taking up the time-varying property of the risk premium coefficient, proposes a GARCH-M model with a time-varying coefficient of the risk premium for an empirical study of the correlation between the conditional skewness in the return distribution and the time-varying risk attitude. The empirical study indicates that the coefficient of the risk premium varies with the time, and even in a mature market the conditional skewness in the return distribution is negatively correlated with the time-varying coefficient of the risk premium.


91B30 Risk theory, insurance (MSC2010)
62P05 Applications of statistics to actuarial sciences and financial mathematics
62M10 Time series, auto-correlation, regression, etc. in statistics (GARCH)
Full Text: DOI


[1] Peiró, A., Skewness in individual stocks at different investment horizons, Quantitative Finance, 2, 139-185 (2002) · Zbl 1405.91566
[2] Jondeau, E.; Rockinger, M., Testing for differences in the tails of stock-market returns, Journal of Empirical Finance, 10, 5, 559-581 (2003) · doi:10.1016/S0927-5398(03)00005-7
[3] Chen, Y.-T.; Lin, C.-C., On the robustness of symmetry tests for stock returns, Studies in Nonlinear Dynamics and Econometrics, 12, 2, article 2 (2008) · Zbl 1193.91170
[4] Samuelson, P., The fundamental approximation of theorem in portfolio analysis in terms of means, variances and higher moments, Review of Economic Studies, 37, 537-542 (1970) · Zbl 0212.52001
[5] Lai, T.-Y., Portfolio selection with skewness: a multiple-objective approach, Review of Quantitative Finance and Accounting, 1, 3, 293-305 (1991) · doi:10.1007/BF02408382
[6] Prakash, A. J.; Chang, C.-H.; Pactwa, T. E., Selecting a portfolio with skewness: recent evidence from US, European, and Latin American equity markets, Journal of Banking and Finance, 27, 7, 1375-1390 (2003) · doi:10.1016/S0378-4266(02)00261-3
[7] Canela, M. A.; Collazo, E. P., Portfolio selection with skewness in emerging market industries, Emerging Markets Review, 8, 3, 230-250 (2007) · doi:10.1016/j.ememar.2006.03.001
[8] Zakamouline, V.; Koekebakker, S., Portfolio performance evaluation with generalized Sharpe ratios: beyond the mean and variance, Journal of Banking and Finance, 33, 7, 1242-1254 (2009) · doi:10.1016/j.jbankfin.2009.01.005
[9] Merton, R. C., On estimating the expected return on the market, Journal of Financial Economics, 8, 323-361 (1980)
[10] Duffie, D.; Pan, J.; Singleton, K., Transform analysis and asset pricing for affine jump-diffusions, Econometrica, 68, 6, 1343-1376 (2000) · Zbl 1055.91524
[11] Smith, D. R., Conditional coskewness and asset pricing, Journal of Empirical Finance, 14, 1, 91-119 (2007) · doi:10.1016/j.jempfin.2006.04.004
[12] Li, X.; Qin, Z.; Kar, S., Mean-variance-skewness model for portfolio selection with fuzzy returns, European Journal of Operational Research, 202, 1, 239-247 (2010) · Zbl 1175.90438 · doi:10.1016/j.ejor.2009.05.003
[13] Bollerslev, T., Generalized autoregressive conditional heteroskedasticity, Journal of Econometrics, 31, 3, 307-327 (1986) · Zbl 0616.62119
[14] Singleton, J. C.; Wingender, J. R., Skewness persistence in common stock returns, Journal of Financial and Quantitative Analysis, 21, 335-341 (1986)
[15] Lau, H. S.; Wingender, J. R., The analytics of the intervaling effect on skewness and kurtosis of stock returns, The Financial Review, 24, 215-233 (1989)
[16] Muralidhar, K., The bootstrap approach for testing skewness persistence, Management Science, 39, 487-491 (1993) · Zbl 0775.90279
[17] Adcock, C. J.; Shutes, K., An analysis of skewness and skewness persistence in three emerging markets, Emerging Markets Review, 6, 4, 396-418 (2005) · doi:10.1016/j.ememar.2005.09.004
[18] Harvey, C. R.; Siddique, A., Autoregressive conditional skewness, Journal of Financial and Quantitative Analysis, 34, 465-552 (1999)
[19] Pelagatti, M. M., Modelling good and bad volatility, Studies in Nonlinear Dynamics and Econometrics, 13, 1, article 2 (2009) · Zbl 1193.91178
[20] León, A.; Rubio, G.; Serna, G., Autoregresive conditional volatility, skewness and kurtosis, Quarterly Review of Economics and Finance, 45, 4-5, 599-618 (2005) · doi:10.1016/j.qref.2004.12.020
[21] Chan, F., Modelling time-varying higher moments with maximum entropy density, Mathematics and Computers in Simulation, 79, 9, 2767-2778 (2009) · Zbl 1168.91493 · doi:10.1016/j.matcom.2008.11.016
[22] Bakshi, G.; Kapadia, N.; Madan, D., Stock return characteristics, skewness law, and the differential pricing of individual equity option, Review of Financial Studies, 16, 1, 101-143 (2003)
[23] Ekholm, A.; Pasternack, D., The negative news threshold—an explanation for negative skewness in stock returns, European Journal of Finance, 11, 6, 511-529 (2005) · doi:10.1080/1351847042000286702
[24] Wen, F.; Huang, D.; Lan, Q.; Yang, X., Return distribution under behavioral biases: a simulation study, Proceeding of the joint conference on information sciences
[25] Bae, K.-H.; Lim, C.; John Wei, K. C., Corporate governance and conditional skewness in the world’s stock markets, Journal of Business, 79, 6, 2999-3028 (2006) · doi:10.1086/508006
[26] Xu, J., Price convexity and skewness, Journal of Finance, 62, 5, 2521-2552 (2007) · doi:10.1111/j.1540-6261.2007.01283.x
[27] Hutson, E.; Kearney, C.; Lynch, M., Volume and skewness in international equity markets, Journal of Banking and Finance, 32, 7, 1255-1268 (2008) · doi:10.1016/j.jbankfin.2007.10.011
[28] Albuquerque, R., Skewness in Stock Returns, Periodic Cash Payouts, and Investor Heterogeneity
[29] Wen, F.; Yang, X., Skewness of return distribution and coefficient of risk premium, Journal of Systems Science and Complexity, 22, 3, 360-371 (2009) · doi:10.1007/s11424-009-9170-x
[30] Anderson, H. M.; Nam, K.; Vahid, F.; Rothman, P., An asymmetric nonlinear smooth-transition GARCH model, Nonlinear Time Series Analysis of Economic and Financial Data (1999), Boston, Mass, USA: Kluwer Academic Publishers, Boston, Mass, USA
[31] Kim, T.-H.; White, H., On more robust estimation of skewness and kurtosis, Finance Research Letters, 1, 1, 56-73 (2004) · doi:10.1016/S1544-6123(03)00003-5
[32] Groeneveld, R. A.; Meeden, G., Measuring skewness and kurtosis, The Statistician, 33, 391-399 (1984)
[33] Li, G., Time-varying risk aversion and asset prices, Journal of Banking and Finance, 31, 1, 243-257 (2007) · doi:10.1016/j.jbankfin.2006.02.005
[34] Cotter, J.; Hanly, J., Time-varying risk aversion: an application to energy hedging, Energy Economics, 32, 2, 432-441 (2010) · doi:10.1016/j.eneco.2009.08.009
[35] Thaler Richard, H.; Johnson Eric, J., Gambling with the house money and trying to break even: the effects of prior outcomes on risky choice, Management Science, 36, 6, 643-660 (1990)
[36] Barberis, N.; Huang, M.; Santos, T., Prospect theory and asset prices, Quarterly Journal of Economics, 116, 1, 1-53 (2001) · Zbl 0979.91025 · doi:10.1162/003355301556310
[37] Wen, F.; Liu, Z., A copula-based correlation measure and its application in chinese stock market, International Journal of Information Technology and Decision Making, 8, 4, 787-801 (2009) · Zbl 1186.91236 · doi:10.1142/S0219622009003612
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.