China vs. U.S.: is co-skewness risk priced differently?

Liang Dong, Hung Wan Kot, Keith S. K. Lam and Bo Yu

Asia-Pacific Journal of Accounting & Economics, 2022, vol. 29, issue 5, 1333-1353

Abstract: We investigate the role of co-skewness in pricing stock returns in the Chinese and U.S. markets. In both markets, co-skewness is priced with a negative premium. The annualized factor-adjusted co-skewness effect is −7.98% in China and −3.53% in the U.S. The negative co-skewness effect coexists with other higher-moment-related pricing effects. Through two natural experiments in the Chinese and U.S. markets, we find that an improvement in the information environment greatly enhances the co-skewness pricing effect in both markets. Furthermore, we find that the governance structure and the efficiency level are the main determinants of the co-skewness premium in the Chinese market.

Date: 2022
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DOI: 10.1080/16081625.2020.1726189

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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