A multivariate test of the covariance-co-skewness restriction for the three moment CAPM |
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Authors: | Ahyee Lee Ronald L Moy Cheng F Lee |
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Institution: | aFu-Jen Catholic University, Taipei, Taiwan;bSt. John's University, Staten Island, NY USA;cRutgers University, New Brunswick, NJ USA |
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Abstract: | This paper re-examines the importance of co-skewness in asset pricing using the multivariate testing procedure proposed by Gibbons (1982). This new approach allows for the testing of a share restriction derived from the Kraus and Litzenberger (1976) model which has been ignored in previous empirical studies. The results indicate that co-skewness is statistically significant in pricing risky assets and that the covariance risk is much more important in explaining the risk-return relationship than the co-skewness risk. However, the results also indicate that the Kraus and Litzenberger model does not adequately describe expected returns. |
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Keywords: | Multivariate Covariance Co-skewness |
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