Higher-Moment Risk

75 Pages Posted: 15 Nov 2017 Last revised: 26 Dec 2023

See all articles by Niels Joachim Gormsen

Niels Joachim Gormsen

University of Chicago - Booth School of Business

Christian Skov Jensen

Bocconi University

Date Written: June 17, 2022

Abstract

We study time variation in the shape of the distribution of stock returns. In a global
sample covering 17 countries, returns are more left skewed and fat tailed during good
times than during bad times. This pattern creates pro-cyclical variation in conditional
tail risk, which is the risk of losing several conditional standard deviations of returns.
The variation in higher-order moments is hard to reconcile with the idea that disaster
risk is elevated in bad times, which is otherwise a basic premise of leading disaster-based
asset pricing models.

Keywords: asset pricing, financial economics, higher order moments, tail risk

JEL Classification: G00, G1, G12, G13, G17

Suggested Citation

Gormsen, Niels Joachim and Jensen, Christian Skov, Higher-Moment Risk (June 17, 2022). Available at SSRN: https://ssrn.com/abstract=3069617 or http://dx.doi.org/10.2139/ssrn.3069617

Niels Joachim Gormsen

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Christian Skov Jensen (Contact Author)

Bocconi University ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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