If asset returns have systematic skewness, expected returns should include rewards for accepting this risk. The paper formalizes this intuition with an asset pricing model that incorporates conditional skewness. The results show that conditional skewness helps explain the cross-sectional variation of expected returns across assets and is significant even when...
This paper studies the patterns of inflation skewness in 56 countries. Monthly data suggests that inflation is positively skewed. Paper investigate linkages between skewness and non-linearity, showing that concavity convexity will lead to negative positive skewness if the independent variable is symmetrically distributed. Paper construct a public finance model...
Single factor asset pricing models face two major hurdles: the problematic time-series properties of the ex ante market risk premium and the inability of the risk measure to account for a substantial degree of the crosssectional variation of expected excess returns. This article provides an explanation for the first failure...
What are the drivers of average returns in international markets? Are the sources of risk that impact developed market returns the same as the risk factors that affect emerging market returns? These are the questions explored in this study. It has examined 18 measures of risk in 47 international markets....
Although the inclusion of hedge funds in an investment portfolio can significantly improve that portfolios mean-variance characteristics, it can also be expected to lead to significantly lower skewness and higher kurtosis. In this paper, it is shown that how allocating a fraction of wealth to out-of-the-money can neutralize this highly...
Since, nobody can clearly see into the future, achieving an accurate assessment of risk and its related expected returns is a cornerstone of prudent investing. But first it is important to define what exactly is meant by “risk.” Risk takes on many guises and can be different things to different...
This paper investigates whether it is possible for a fund of hedge funds to not only offer investors access to a diversified basket of hedge funds but to provide skewness protection at the same time. It studies two different strategies. The first is for a fund to buy stock index...
This paper studies the diversification effects from introducing hedge funds into a traditional portfolio of stocks and bonds. The results make it clear that in terms of skewness and kurtosis equity and hedge funds do not combine very well. Although the inclusion of hedge funds may significantly improve a portfolio's...
In this paper we study the possible role of managed futures in portfolios of stocks, bonds and hedge funds. The paper finds that allocating to managed futures allows investors to achieve a very substantial degree of overall risk reduction at limited costs. Adding managed futures to a portfolio of stocks...
This paper incorporates investor preferences into a Polynomial Goal Programming PGP optimization function. This approach allows to solve for multiple competing and often conflicting hedge fund allocation objectives within the mean-variance-skewness-kurtosis framework. The papers analysis shows that equity market neutral funds are risk and kurtosis reducers while global macro funds...
The menu-cost models of price adjustment developed by Ball and Mankiw (1994;1995) predict that short-run movements in inflation should be positively related to the skewness and the variance of the distribution of disaggregated relative-price shocks in each period. Canadian data, both in the context of partial correlations and standard price...
Previous research has shown that the returns on individual properties and listed property securities are skewed. This claim is investigated in the context of listed UK property companies. In particular, the shape of the conditional distribution of total monthly returns is examined for a group of 20 companies listed continuously...
In this article one, study the possible role of managed futures in portfolios of stocks, bonds, and hedge funds. One find that allocating to managed futures allows investors to achieve a very substantial degree of overall risk reduction at limited costs. Apart from their lower expected return, managed futures appear...
The monthly return distributions of many hedge fund indices exhibit highly unusual skewness and kurtosis properties as well as first-order serial correlation. This has important consequences for investors. It demonstrates that although hedge fund indices are highly attractive in mean-variance terms, this is much less the case when skewness, kurtosis,...
We analyze cross-sectional and time series information from forty-seven equity markets around the world, to consider whether short-sales restrictions affect the efficiency of the market, and the distributional characteristics of returns to individual stocks and market indices. Using the approach developed in Moerck et al. (2000) we find significantly more...
The CAPM model has serious difficulties to explain the past superior performance of most hedge funds. The purpose of this research is to analyze how to price hedge funds. This paper compares the traditional CAPM based on the Markowitz mean-variance criterion with extensions of the CAPM that account for co-skewness...
This paper explores the statistical properties of these models with a view to identifying simple criteria for judging the consistency of either model with data from a given market; our specific focus is on the patterns of skewness and kurtosis that arise in each case as the length of the...
This paper introduces measures of volatility and skewness that are based on individual stock options to explain credit spreads on corporate bonds. Implied volatilities of individual options are shown to contain important information for credit spreads and improve on both implied volatilities of index options when explaining the cross-sectional and...
This paper analyzes the relationship between diversification and several distributional characteristics that have risk implications for stock returns. The paper develops a flexible three-parameter distribution to model the stock returns. Using data of the current 30 DJIA stocks, it shows that an investorÆs strategy of diversification depends on the measures...
When ambiguity averse investors process news of uncertain quality, they act as if they take a worst-case assessment of quality. As a result, they react more strongly to bad news than to good news. They also dislike assets for which information quality is poor, especially when the underlying fundamentals are...
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