EconPapers    
Economics at your fingertips  
 

Implications of Asymmetry Risk for Portfolio Analysis and Asset Pricing

Fousseni Chabi-Yo, Dietmar Leisen and Eric Renault

Staff Working Papers from Bank of Canada

Abstract: Asymmetric shocks are common in markets; securities' payoffs are not normally distributed and exhibit skewness. This paper studies the portfolio holdings of heterogeneous agents with preferences over mean, variance and skewness, and derives equilibrium prices. A three funds separation theorem holds, adding a skewness portfolio to the market portfolio; the pricing kernel depends linearly only on the market return and its squared value. Our analysis extends Harvey and Siddique's (2000) conditional mean-variance-skewness asset pricing model to non-vanishing risk-neutral market variance. The empirical relevance of this extension is documented in the context of the asymmetric GARCH-in-mean model of Bekaert and Liu (2004).

Keywords: Financial markets; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: C52 D58 G11 G12 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2007
New Economics Papers: this item is included in nep-cfn and nep-fmk
References: Add references at CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2010/02/wp07-47.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:07-47

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2023-01-25
Handle: RePEc:bca:bocawp:07-47