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Global idiosyncratic risk moments

Mohammadreza Tavakoli Baghdadabad () and Girijasankar Mallik ()
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Mohammadreza Tavakoli Baghdadabad: Western Sydney University
Girijasankar Mallik: Western Sydney University

Empirical Economics, 2018, vol. 55, issue 2, 731-764

Abstract: Abstract We investigate a global cross-sectional relation between idiosyncratic risk moments and expected stock returns by suggesting three global idiosyncratic volatility, skewness, and kurtosis risk factors. We also suggest two global small minus big and high minus low risk proxies for estimating return residuals of the test assets from a global asset pricing model. To perform robustness checks, we suggest other four global risk factors of momentum, leverage, bid-ask spread, and liquidity. We find a significant negative relation between stock portfolio returns and the global moments, and the cross section of stock returns reflects a significant negative price of risk for global idiosyncratic skewness (−0.13%) and idiosyncratic volatility (−1.85%) and a positive and significant price of risk for global idiosyncratic kurtosis. We find that our suggested risk factors are key drivers of risk premia in stock market and are robust to various checks. These factors also can forecast the gross domestic product growth over the sample period.

Keywords: Global idiosyncratic risk; Risk moment; Skewness; Kurtosis; Volatility (search for similar items in EconPapers)
JEL-codes: G12 G15 G32 (search for similar items in EconPapers)
Date: 2018
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