Systematic skewness in asset pricing: an empirical examination of the Taiwan stock market

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Abstract:

This paper is an empirical study of asset pricing with the systematic skewness in the pricing model. We adopt the Fama-French three-factor model, which incorporates the firm-size and book-to-market ratio in asset pricing as the base case, and then includes the skewness factor used by Harvey and Siddique in the pricing model. The evidence shows that systematic skewness is significant and might be important in asset pricing when portfolios are formed by industry, firm-size, book-to-market, or momentum strategies. When portfolios are constructed by momentum or coskewness strategies, lower momentum, or lower coskewness portfolios exhibit higher skewness and higher kurtosis. When portfolios are grouped by excess returns, it is seen that the average excess return is positively correlated with size and coskewness. Thus the systematic skewness is closely related to firm size. And the relationship between systematic skewness and excess return is obscured by the reverse firm-size effect.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840310001628044

Affiliations: Department of Business Administration, National Taiwan University of Science and Technology, 43, Section 4, Keelung Road, Taipei 106, Taiwan

Publication date: November 20, 2003

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