Priced Risk And Asymmetric Volatility In The Cross-Section Of Skewness

The authors investigate the sources of skewness in aggregate risk-factors and the cross-section of stock returns. In an ICAPM setting with conditional volatility, they find theoretical time series predictions on the relationships among volatility, returns, and skewness for priced risk factors. Market returns resemble these predictions; however, size, book to-market, and momentum factor returns show alternative behavior, leading to conclude these factors are not priced risks. They link aggregate risk and skewness to individual stocks and find empirically that the risk aversion effect manifests in individual stock skewness.