On the robustness of higher-moment factors in explaining average expected returns: Evidence from Australia |
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Authors: | Minh Phuong Doan Chien-Ting Lin |
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Affiliation: | a School of Economics, Finance and Marketing, RMIT University, 239 Bourke st, Melbourne, VIC 3000, Australia b School of Accounting, Economics, and Finance, Deakin University, Burwood, VIC, Australia |
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Abstract: | This study tests the importance of systematic skewness and systematic kurtosis of Australian stock returns in the spirit of the higher-moment asset pricing model. We apply the Dagenais and Dagenais (1997) higher-moment estimators to correct for the errors-in-variables (EIVs) problems commonly found in the Fama and MacBeth (1973) two-pass regression methodology. After correcting for the EIVs problems, the two higher-moment factors, especially systematic skewness, are important in pricing Australian stocks. Systematic kurtosis appears to replace beta which plays a diminished role in the heavy-tailed return distribution. |
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Keywords: | C13 C31 G12 |
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