The Skewness Risk in the Energy Market

Jungah Yoon, Xinfeng Ruan and Jin E. Zhang
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Jungah Yoon: Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin 9054, New Zealand
Xinfeng Ruan: Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin 9054, New Zealand
Jin E. Zhang: Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin 9054, New Zealand

JRFM, 2021, vol. 14, issue 12, 1-24

Abstract: In this paper, we study the skewness risk and its return predictability in the energy market. Skewness risk is often used to measure the possibility of market crash. We study both physical skewness (market skewness and cross-sectional average realized skewness) estimated from underlying stock returns and risk-neutral skewness evaluated from the options market. We find a significant positive relationship between one-month-ahead market return and average realized skewness in the energy market. This unique feature should be noted by investors and carefully considered by energy policymakers.

Keywords: realized skewness; nonparametric risk-neutral skewness; return predictability (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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