Work

Market volatility and skewness risks in China

Year: 2025

Type: article

Abstract: We examine the pricing of the risk-neutral market volatility and skewness risks in the cross-section of stocks in China. We find that stocks with high exposures to innovations in volatility or skewness exhibit low expected returns. Market volatility is economically important and commands a notably high risk premium. Compared to the US, innovations in volatility (skewness) exhibit less (more) negative contemporaneous correlation with market returns. These relationships provide a hedging explanation for our results. The negative risk premium of volatility is robust to empirical settings, whereas that of skewness is related to market risk and sensitive to testing methods.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2025.103968

Author: Fang Zhen

Institution: Central University of Finance and Economics

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $1,930

Funder: Central University of Finance and Economics