Abstract

http://ssrn.com/abstract=503122
 
 

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Asset Pricing When Returns Are Nonnormal: Fama-French Factors vs. Higher-Order Systematic Co-Moments


Y. Peter Chung


University of California at Riverside

Herb Johnson


University of California, Riverside - Department of Finance and Management Science

Michael J. Schill


University of Virginia – Darden Graduate School of Business Administration


Journal of Business, Forthcoming

Abstract:     
A growing literature contends that, because returns are not normal, higher-order co-moments matter to risk-averse investors. Fama and French (1993, 1995) find that nonmarket risk factors based on size and book-to-market ratio are priced by investors. We test the hypothesis that the Fama-French factors simply proxy for the pricing of higher-order co-moments. Using portfolio returns over various time horizons, we show that adding a set of systematic co-moments (but not standard moments) of order 3 through 10 reduces the explanatory power of the Fama-French factors to insignificance in almost every case.

Number of Pages in PDF File: 27

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Date posted: February 16, 2004  

Suggested Citation

Chung, Y. Peter and Johnson, Herb and Schill, Michael J., Asset Pricing When Returns Are Nonnormal: Fama-French Factors vs. Higher-Order Systematic Co-Moments. Journal of Business, Forthcoming. Available at SSRN: http://ssrn.com/abstract=503122

Contact Information

Y. Peter Chung
University of California at Riverside ( email )
Riverside, CA 92521
United States
909-787-3906 (Phone)
909-787-2933 (Fax)
Herbert E. Johnson
University of California, Riverside - Department of Finance and Management Science ( email )
Riverside, CA 92521
United States
909-787-2932 (Phone)
909-787-2933 (Fax)
Michael J. Schill (Contact Author)
University of Virginia – Darden Graduate School of Business Administration ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)
HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm
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