Higher-Order Systematic Comoments and Asset Pricing: New Evidence |
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Authors: | Duong Nguyen Tribhuvan N Puri |
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Institution: | University of Massachusetts Dartmouth; University of Massachusetts Dartmouth |
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Abstract: | We provide evidence supporting Rubinstein's (1973) model that if returns are not normal, measuring risk requires more than just measuring covariance. Higher-order systematic comoments should be important to risk-averse investors who are concerned about the extreme outcomes of their investments. Our paper shows that the Fama-French factors SMB (return on small stocks less the return on big stocks), HML (return on high book-to-market stocks less the return on low book-to-market stocks)] as well as the momentum and market liquidity factors can be explained by the higher-order systematic comoments, and it lends support to the traditional covariance risk-based theory without having to resort to behavior assumptions. |
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Keywords: | higher-order comoments Fama-French momentum market liquidity factors |
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