In this paper, we conduct skewness term structure tests to check whether the temporal structure of risk-neutral skewness is consistent with rational expectations. Because risk-neutral skewness is substantially mean reverting, skewness shocks should decay quickly and risk-neutral skewness of more...

Using an equilibrium asset and option pricing model in a production economy under jump diffusion, we derive an analytical link between the equity premium, risk aversion and the systematic variance and skewness risk premium. In an empirical application of the model using more than 20 years of...

This paper contributes to the literature on systematic co-moments in stock returns by documenting the effects of non-diversified variance, skewness, and kurtosis on asset valuation during the period 1996-2006. Through a methodology similar to that of Fama and French (1993), we derive premia able...