Asset Pricing with Systematic Skewness: Two Decades Later
46 Pages Posted: 8 Jul 2021 Last revised: 3 Nov 2022
Date Written: February 23, 2022
Abstract
We reexamine the asset pricing performance of systematic skewness ("coskewness"), a risk factor in the three-moment CAPM model of Kraus and Litzenberger (1976). In an influential paper, Harvey and Siddique (2000) test a coskewness factor constructed by sorting stocks on past coskewness. We replicate and extend their paper. Overall, coskewness appears to be priced in the cross section of stocks, especially when using an alternative coskewness proxy like (i) the predicted systematic skewness (PSS) of Langlois (2020), where coskewness is predicted by various firm characteristics, or (ii) a modified PSS factor (mPSS) that uses only return-based characteristics.
Keywords: Skewness, coskewness, three-moment CAPM, persistent factors, expected return
JEL Classification: G12
Suggested Citation: Suggested Citation