Higher moments and beta asymmetry: Evidence from Australia

Minh Phuong Doan; Chien Ting Lin; Michael Chng

doi:10.1111/acfi.12022

Higher moments and beta asymmetry: Evidence from Australia

Minh Phuong Doan, Chien Ting Lin, Michael Chng

Deakin University

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

We examine whether systematic higher moments capture beta asymmetry in an asset pricing model whereby the conditional beta of a risky asset increases (decreases) during a bear (bull) market state. We first provide a simple conceptual outline from the microeconomic literature to show that beta asymmetry is driven by time-varying higher-order risk preferences (prudence and temperance) across different market states. We then empirically relate these higher-order risk preferences to systematic skewness and systematic kurtosis. We find that beta asymmetry in Australian stock returns cannot be explained by Carhart (1997) 4-factor model but is subsumed by systematic higher moments.

Original language	English
Pages (from-to)	779-807
Number of pages	29
Journal	Accounting and Finance
Volume	54
Issue number	3
DOIs	https://doi.org/10.1111/acfi.12022
Publication status	Published - 1 Sept 2014
Externally published	Yes

Keywords

Asset pricing
Australian stock returns
Beta risk
Kurtosis
Skewness

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10.1111/acfi.12022

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abstract = "We examine whether systematic higher moments capture beta asymmetry in an asset pricing model whereby the conditional beta of a risky asset increases (decreases) during a bear (bull) market state. We first provide a simple conceptual outline from the microeconomic literature to show that beta asymmetry is driven by time-varying higher-order risk preferences (prudence and temperance) across different market states. We then empirically relate these higher-order risk preferences to systematic skewness and systematic kurtosis. We find that beta asymmetry in Australian stock returns cannot be explained by Carhart (1997) 4-factor model but is subsumed by systematic higher moments.",

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AB - We examine whether systematic higher moments capture beta asymmetry in an asset pricing model whereby the conditional beta of a risky asset increases (decreases) during a bear (bull) market state. We first provide a simple conceptual outline from the microeconomic literature to show that beta asymmetry is driven by time-varying higher-order risk preferences (prudence and temperance) across different market states. We then empirically relate these higher-order risk preferences to systematic skewness and systematic kurtosis. We find that beta asymmetry in Australian stock returns cannot be explained by Carhart (1997) 4-factor model but is subsumed by systematic higher moments.

KW - Asset pricing

KW - Australian stock returns

KW - Beta risk

KW - Kurtosis

KW - Skewness

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JF - Accounting and Finance

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Higher moments and beta asymmetry: Evidence from Australia

Abstract

Keywords

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