Moment Risk Premia and the Cross-Section of Stock Returns
41 Pages Posted: 29 Sep 2016 Last revised: 30 Mar 2018
Date Written: March 26, 2018
We investigate the determinants of moment risk premia (MRP) and their relationship with stock returns. Stocks with high beta, idiosyncratic volatility and maximum return are associated with a high variance risk premium (VRP). The skew risk premium (SRP) is mainly driven by return reversals, the maximum return and idiosyncratic skewness, while the kurtosis risk premium (KRP) is associated with all firm characteristics. We find that both the VRP and SRP are negatively related to stock returns, while the KRP has no relation with stock returns. However, the negative relation between the SRP and stock returns is robust to the inclusion of firm-level variables, while the VRP is not.
Keywords: the variance, skew and kurtosis risk premia, the cross section of stock return
JEL Classification: G12
Suggested Citation: Suggested Citation