Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53818
Authors: 
Chabi-Yo, Fousseni
Leisen, Dietmar
Renault, Eric
Year of Publication: 
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
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