The world predictive power of U.S. equity market skewness risk

Jian Chen, Fuwei Jiang (), Shuyu Xue and Jiaquan Yao

Journal of International Money and Finance, 2019, vol. 96, issue C, 210-227

Abstract: This study investigates the cross-country impact of U.S. equity market skewness risk. We find that a large decrease in the U.S. market skewness significantly predicts higher future returns on international equity markets. The predictability remains significant after controlling for a set of U.S. and local forecasting variables. Furthermore, we find strong predictability in- an out-of-sample setting and the predictability delivers a large economic value. The U.S. market skewness also forecasts U.S. economic recessions and international market conditions, consistent with the international three-moment capital asset pricing model (three-moment CAPM) and the intertemporal capital asset pricing model (ICAPM).

Keywords: Return predictability; International stock markets; Skewness risk; Market crash (search for similar items in EconPapers)
JEL-codes: C22 C53 G11 G12 G17 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:96:y:2019:i:c:p:210-227

DOI: 10.1016/j.jimonfin.2019.05.003

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