Skewness Preference and Asset Pricing: Evidence from the Japanese Stock Market

Sheng-Ping Yang and Thanh Nguyen
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Thanh Nguyen: Department of Economics and Management, Gustavus Adolphus College, 800 W. College Ave., Saint Peter, MN 56082, USA

JRFM, 2019, vol. 12, issue 3, 1-10

Abstract: Previous studies have shown that investor preference for positive skewness creates a potential premium on negatively skewed assets. In this paper, we attempt to explore the connection between investors’ skewness preferences and corresponding demand for a risk premium on asset returns. Using data from the Japanese stock market, we empirically study the significance of risk aversion with skewness preference that potentially delivers a premium. Compared to studies on other stock markets, our finding suggests that Japanese investors exhibit preference for positively skewed assets, but do not display dislike for ones that are negatively skewed. This implies that investors from different countries having dissimilar attitudes toward risk may possess different preferences toward positive skewness, which would result in a different magnitude of expected risk premium on negatively skewed assets.

Keywords: asset pricing; higher moment estimators; Japanese stock market; risk preferences; systematic skewness (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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