Higher moments and beta asymmetry: Evidence from Australia

Minh Phuong Doan, Chien Ting Lin, Michael Chng

Research output: Contribution to journalArticlepeer-review

10 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 languageEnglish
Pages (from-to)779-807
Number of pages29
JournalAccounting and Finance
Volume54
Issue number3
DOIs
Publication statusPublished - 1 Sept 2014
Externally publishedYes

Keywords

  • Asset pricing
  • Australian stock returns
  • Beta risk
  • Kurtosis
  • Skewness

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