Higher moments and beta asymmetry: evidence from Australia. (17th May 2013)

• Record Type: Journal Article
• Authors: Doan, Minh Phuong; Lin, Chien‐Ting; Chng, Michael; Gallagher, David
• Is Part Of: Accounting and finance. Volume 54:Number 3(2014:Sep.)
• Page Start: 779
• Page End: 807
• Publication Date: 2013-05-17
• Subjects: Accounting -- Periodicals; Finance -- Periodicals; 657.05
• DOI: 10.1111/acfi.12022
• Languages: English
• ISSNs: 0810-5391

Abstract

<abstract abstract-type="main" xml:lang="en" id="acfi12022-abs-0001"> <title>Abstract</title> <p>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 (<italic>prudence</italic> and <italic>temperance</italic>) 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.</p> </abstract>