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http://hdl.handle.net/10419/53818
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| Title: | | Implications of asymmetry risk for portfolio analysis and asset pricing  |
| Authors: | | Chabi-Yo, Fousseni Leisen, Dietmar Renault, Eric |
| Issue Date: | | 2007 |
| Series/Report no.: | | Bank of Canada Working Paper 2007,47 |
| 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 riskneutral 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). |
| Subjects: | | Financial markets Market structure and pricing |
| JEL: | | C52 D58 G11 G12 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Bank of Canada Working Papers
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