Download This PaperThe Crash Risk in Individual Stocks Embedded in Skewness Swap Returns
66 Pages Posted: 29 Mar 2018 Last revised: 28 Jul 2025
Date Written: June 30, 2025
Abstract
This paper investigates crash risk premiums in individual stocks using skewness swaps. These swaps involve buying a stock's risk-neutral skewness and receiving the realized skewness as a payoff. The strategy's returns, which measure the skewness risk premium, are found to be consistently large and positive. This suggests investors are concerned about potential crashes in individual stocks and require substantial compensation for bearing this risk. Notably, significant results are mainly observed after the 2007/2009 financial crisis, indicating changes in post-crisis option market dynamics. Cross-sectional determinants of skewness swap returns include measures of systematic crash risk and stock overvaluation.
Keywords: Skewness risk premium, skewness swap, financial crisis
JEL Classification: G01, G12, G13
Suggested Citation: Suggested Citation
, Available at SSRN: https://ssrn.com/abstract=3151975 or http://dx.doi.org/10.2139/ssrn.3151975