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Higher-Moment Risk

2017; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.3069617

1556-5068

Niels Joachim Gormsen, Christian Skov Jensen,

Financial Risk and Volatility Modeling

We study time-variation in the shape of the distribution of stock returns. In a global sample covering 17 countries, returns are more left-skewed and fat tailed during good times than during bad times, with good and bad times defined as periods with a low and high volatility of the stock market. This variation in the shape of the distribution is inconsistent with leading disaster-based explanations of the equity premium, it induces pro-cyclical variation in the riskiness of volatility-managed portfolios, and it causes the normal distribution to underestimate tail risk more during periods with low volatility.