Investor sentiment and skewness risk premium

This paper provides new evidence on the pricing of market skewness risk by incorporating investor sentiment in the relation between sensitivity to innovations in implied market skewness and expected stock returns. Using both univariate and multivariate specifications, we conduct an extensive series...

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Bibliographic Details
Published in:Applied economics 2024-07, Vol.56 (35), p.4194-4208
Main Author: Yaakoubi, Soumaya
Format: Article
Language:English
Subjects:
Asset pricing
Economic analysis
implied market skewness
Innovations
Investor sentiment
Risk factors
Skewness
systematic skewness
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Summary:This paper provides new evidence on the pricing of market skewness risk by incorporating investor sentiment in the relation between sensitivity to innovations in implied market skewness and expected stock returns. Using both univariate and multivariate specifications, we conduct an extensive series of asset pricing tests on the cross-section of stocks during high and low sentiment periods separately. We find that market skewness risk carries a negative premium that cannot be explained away by known risk factors when sentiment is low. In contrast, the results are not conducive to a risk explanation when sentiment is high.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2023.2210822