We would like to thank Steven Cahan (editor-in-chief), David Gallagher (editor), and an anonymous referee for their comments. We would also like to acknowledge the financial support from Australian Centre for Financial Studies.
Higher moments and beta asymmetry: evidence from Australia
Version of Record online: 17 MAY 2013
© 2013 The Authors Accounting and Finance © 2013 AFAANZ
Accounting & Finance
Volume 54, Issue 3, pages 779–807, September 2014
How to Cite
Doan, M. P., Lin, C.-T., Chng, M. (2014), Higher moments and beta asymmetry: evidence from Australia. Accounting & Finance, 54: 779–807. doi: 10.1111/acfi.12022
- Issue online: 23 SEP 2014
- Version of Record online: 17 MAY 2013
- Manuscript Accepted: 7 APR 2013
- Manuscript Received: 16 JAN 2013
- Asset pricing;
- Beta risk;
- Australian stock returns
We examine whether systematic higher moments capture beta asymmetry in an asset pricing model whereby the conditional beta of a risky asset increases (decreases) during a bear (bull) market state. We first provide a simple conceptual outline from the microeconomic literature to show that beta asymmetry is driven by time-varying higher-order risk preferences (prudence and temperance) across different market states. We then empirically relate these higher-order risk preferences to systematic skewness and systematic kurtosis. We find that beta asymmetry in Australian stock returns cannot be explained by Carhart (1997) 4-factor model but is subsumed by systematic higher moments.