Abstract

http://ssrn.com/abstract=1134960
 
 

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Conditional Co-Skewness in Stock and Bond Markets: Time Series Evidence


Jian Yang


University of Colorado at Denver - Business School

Yinggang Zhou


The Chinese University of Hong Kong

Zijun Wang


Texas A&M University

July 19, 2010

Management Science, Forthcoming

Abstract:     
In the context of a three-moment Intertemporal Capital Asset Pricing Model specification, we characterize conditional co-skewness between stock and bond excess returns using a bivariate regime-switching model. We find that both conditional U.S. stock co-skewness (the relation between stock return and bond volatility) and bond co-skewness (the relation between bond return and stock volatility) command statistically and economically significant negative ex ante risk premiums. The impacts of the US stock and bond co-skewness on the conditional stock and bond premium on average is as large as the average of corresponding unconditional premium on these markets. The basic findings are quite robust in another country (U.K.) and in the recent post-WWII period.

Number of Pages in PDF File: 39

Keywords: regime-switching, conditional co-skewness, intertemporal asset pricing, stock and bond co-movements

JEL Classification: G11, G12, G15

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Date posted: May 21, 2008 ; Last revised: April 13, 2011

Suggested Citation

Yang, Jian and Zhou, Yinggang and Wang, Zijun, Conditional Co-Skewness in Stock and Bond Markets: Time Series Evidence (July 19, 2010). Management Science, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1134960

Contact Information

Jian Yang (Contact Author)
University of Colorado at Denver - Business School ( email )
1250 14th St.
Denver, CO 80204
United States
Yinggang Zhou
The Chinese University of Hong Kong ( email )
Shatin
Hong Kong
Zijun Wang
Texas A&M University ( email )
College Station, TX 77843
United States
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