Market volatility and skewness risks in China

Fang Zhen

International Review of Economics & Finance, 2025, vol. 99, issue C

Abstract: We examine the pricing of the risk-neutral market volatility and skewness risks in the cross-section of stocks in China. We find that stocks with high exposures to innovations in volatility or skewness exhibit low expected returns. Market volatility is economically important and commands a notably high risk premium. Compared to the US, innovations in volatility (skewness) exhibit less (more) negative contemporaneous correlation with market returns. These relationships provide a hedging explanation for our results. The negative risk premium of volatility is robust to empirical settings, whereas that of skewness is related to market risk and sensitive to testing methods.

Keywords: SSE 50 ETF options; Risk-neutral volatility; Skewness; Cross section (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:99:y:2025:i:c:s1059056025001315

DOI: 10.1016/j.iref.2025.103968

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