Conditional Coskewness in Stock and Bond Markets: Time-Series Evidence

Jian Yang (), Yinggang Zhou () and Zijun Wang ()
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Yinggang Zhou: Faculty of Business Administration, Chinese University of Hong Kong, Hong Kong, People's Republic of China
Zijun Wang: Private Enterprise Research Center, Texas A& M University, College Station, Texas 77843

Management Science, 2010, vol. 56, issue 11, 2031-2049

Abstract: In the context of a three-moment intertemporal capital asset pricing model specification, we characterize conditional coskewness between stock and bond excess returns using a bivariate regime-switching model. We find that both conditional U.S. stock coskewness (the relation between stock return and bond volatility) and bond coskewness (the relation between bond return and stock volatility) command statistically and economically significant negative ex ante risk premiums. The impacts of stock and bond coskewness on the conditional stock and bond premiums are quite robust to various model specifications and various sample periods, and also hold in another major developed country (the United Kingdom). The findings also carry important implications for portfolio management.

Keywords: regime switching; conditional coskewness; intertemporal asset pricing; stock and bond comovements (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:56:y:2010:i:11:p:2031-2049

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