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Skewness of return distribution and coefficient of risk premium

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Abstract

The skewness of the return distribution is one of the important features of the security price. In this paper, the authors try to explore the relationship between the skewness and the coefficient of risk premium. The coefficient of the risk premium is estimated by a GARCH-M model, and the robust measurement of skewness is calculated by Groeneveld-Meeden method. The empirical evidences for the composite indexes from 33 securities markets in the world indicate that the risk compensation requirement in the market where the return distribution is positively skewed is virtually zero, and the risk compensation requirement is positive in a significant level in the market where the return distribution is negative skewed. Moreover, the skewness is negatively correlated with the coefficient of the risk premium.

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Authors and Affiliations

  1. School of Economics and Management, Changsha University of Science and Technology, Changsha, 410076, China

    Fenghua Wen & Xiaoguang Yang

  2. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, 100190, China

    Xiaoguang Yang

Authors
  1. Fenghua Wen
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  2. Xiaoguang Yang
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Correspondence to Fenghua Wen.

Additional information

This research is supported by China Natural Science Foundation (70701035, 70425004, and 70221001), Hunan Natural Science Foundation (09JJ1010), and the Key Research Institute of Philosophies and Social Sciences in Hunan Universities.

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Wen, F., Yang, X. Skewness of return distribution and coefficient of risk premium. J Syst Sci Complex 22, 360–371 (2009). https://doi.org/10.1007/s11424-009-9170-x

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  • DOI: https://doi.org/10.1007/s11424-009-9170-x

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