<scp>Higher‐order</scp> moments and asset pricing in the Australian stock market

Ahadzie, Richard Mawulawoe; Jeyasreedharan, Nagaratnam

doi:10.1111/acfi.13135

Cited by 3 publications

(2 citation statements)

References 108 publications

(249 reference statements)

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“…As confirmed by the results, the three-moment CAPM downside co-skewness is priced, while the conventional counterpart of this coefficient turned out to be insignificant. Similar results were obtained, for example, in the work of Ahadzie and Jeyasreedharan (2023).…”

Section: Discussionsupporting

confidence: 89%

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Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Markowski

2024

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Research background: Conventional CAPM is a well-known and tested theory on various capital markets. It was also repeatedly rejected as a model of capital pricing. This article proposes a different approach to both CAPM testing and the use of other risk measures. In addition, research is global, including emerging countries. Purpose of the article: This paper investigates the standard CAPM, and this model is based on higher moments of the return distribution for the global emerging market. In addition, this paper aims to compare the conventional and downside CAPM versions using the beta coefficient and co-moments. Methods: Contrary to the classical unconditional tests for the risk premium, conditional relationships are also estimated considering the market portfolio condition. Moreover, the studies considered conventional and downside approaches to risk measures. The cross-sectional regressions are based on the Fama-MacBeth (F-M) procedure and panel models. Findings & value added: The findings contribute to the debate on whether beta coefficient and higher order co-moments in conventional and downside approaches can explain the cross-sectional emerging indices returns. The unconditional models using all measures do not significantly describe the cross-sectional volatility of returns. The cross-sectional regressions in up and down-market based on both the classic F-M procedure and panel models show that the beta and co-kurtosis risk premium is significant and depends on market conditions. The risk premium for co-skewness is not valid, and the direction of the relationships is opposite than expected. Research also demonstrates that the test results of CAPM relationships are not robust to the presence of outliers and shocks resulting from the Covid-19 pandemic in the context of risk-return space. Research provides strong support for the importance of downside risk in the context of standard CAPM and, above all, higher co-moments.

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Section: Discussionsupporting

confidence: 89%

“…Based on shares in the British, German and French capital markets, Dong et al (2022a) showed the use of higher moment values to reduce the risk of changes in market dynamics, especially the downside risk. A significant valuation of co-moments was also confirmed on the Australian equity markets (Ahadzie & Jeyasreedharan, 2023).…”

Section: Literature Reviewmentioning

confidence: 58%

Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Markowski

2024

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Realized semibetas in the Australian stock market

Li,

2024

Applied Economics

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Application of Extended Normal Distribution in Option Price Sensitivities

Nayak,

Tripathy,

Imoize

et al. 2024

Mathematics

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Empirical evidence indicates that asset returns adhere to an extended normal distribution characterized by excessive kurtosis and non-zero skewness. Consequently, option prices derived from this distribution diverge from those predicted by the Black–Scholes model. Despite the significance of option price sensitivities for risk management in investment portfolios, the existing literature lacks a thorough exploration of these sensitivities within the context of the extended normal distribution. This article addresses this research gap by deriving the Greeks for options based on the extended normal distribution. The Greeks under consideration include Vega, Delta, Theta, Gamma, Rho, Vanna, Charm, and Vera, all of which are crucial for informed financial decision-making. Furthermore, this study provides a detailed analysis of how these option price sensitivities vary with different levels of kurtosis, offering valuable insights for various market applications. This contribution not only enhances the theoretical understanding of option pricing under non-standard distributions but also presents practical implications for portfolio risk management.

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Higher‐order moments and asset pricing in the Australian stock market

Cited by 3 publications

References 108 publications

Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Realized semibetas in the Australian stock market

Application of Extended Normal Distribution in Option Price Sensitivities

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