Comoment Risk and Stock Returns

Posted: 22 Oct 2010

See all articles by Marie Lambert

Marie Lambert

University of Liege - HEC Management School

Georges Hübner

HEC Liège

Date Written: October 21, 2010

Abstract

This paper estimates higher-order comoment equity risk premiums for the US stock markets. We use an extension of the Fama and French (1993) method to infer the returns attached to a unit exposure to coskewness and cokurtosis risks in the US equity markets. The coskewness and cokurtosis premiums present significant monthly average returns of respectively 0.2% and 0.4% from March 1989 to June 2008. We test the ability of the moment-related premiums to explain the size and book-to-market (BTM) effects in stock returns. Coskewness and cokurtosis risks seem to be significant in explaining the stock returns of small caps and value stocks. The Four-Moment Asset Pricing Model even captures a higher proportion of the return variability of the portfolios sorted on size and book-to-market than an empirical Capital Asset Pricing Model. The higher-order comoment premiums do not subsume the empirical risk factors of Fama and French (1993) and Carhart (1997).

Keywords: Comoment, Hedge Portfolios, Fama and French Method, Fama-MacBeth Test

JEL Classification: G11, G12

Suggested Citation

Lambert, Marie and Hübner, Georges, Comoment Risk and Stock Returns (October 21, 2010). Paris December 2010 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=1695493 or http://dx.doi.org/10.2139/ssrn.1695493

Marie Lambert (Contact Author)

University of Liege - HEC Management School ( email )

HEC-Liège
rue Louvrex 14
LIEGE, Liege 4000
Belgium

Georges Hübner

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
Belgium
+32 42327428 (Phone)

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