Market skewness risk and the cross section of stock returns

B. Chang, P. Christoffersen, K. Jacobs

Research output: Contribution to journalArticleScientificpeer-review

132 Citations (Scopus)

Abstract

The cross section of stock returns has substantial exposure to risk captured by higher moments of market returns. We estimate these moments from daily Standard & Poor's 500 index option data. The resulting time series of factors are genuinely conditional and forward-looking. Stocks with high exposure to innovations in implied market skewness exhibit low returns on average. The results are robust to various permutations of the empirical setup. The market skewness risk premium is statistically and 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.
Original languageEnglish
Pages (from-to)46-68
JournalJournal of Financial Economics
Volume107
Issue number1
DOIs
Publication statusPublished - 2013

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