Pricing the higher order co-moments in the brazilian stock market

• Autor(a) principal: Carolina Magda Silva Roma
• Data de Publicação: 2016
• Outros Autores: Ivika Jäger, Robert Aldo Iquiapaza, Aureliano Angel Bressan
• Tipo de documento: Artigo de conferência
• Idioma: eng
• Título da fonte: Repositório Institucional da UFMG
• Texto Completo: http://hdl.handle.net/1843/41698
• topic: Higher co-moments; Carhart model; Fama-MacBeth regression; Factors; CAPM; 4-moment CAPM; Bolsa de valores

The aim of this article is to investigate whether assets’ co-skewness and co-kurtosis with the market are priced on the Brazilian stock market. The Fama-MacBeth (1973) regression method is used to empirically test the pricing of the higher order co-moments on a crosssection of portfolio returns. The analysis further expands the model by including the size and value factors proposed by Fama and French (1993) and the momentum factor introduced by Carhart (1997). The time series results taking into account the the higher co-moments along with the four-factor variables point out that co-skewness and co-kurtosis capture some variance in the asset returns beyond the size, value and momentum factors. Moreover, the cross-sectional estimation results give partial support for co-skewness being priced in the Brazilian stock market, but only in case the model controls for the size, value and momentum factors. Moreover, the cross-sectional estimation results give partial support for co-skewness being priced in the Brazilian stock market. Controlling for up and down markets turns out to be important and results in strong support for beta pricing while also providing partial evidence of existing premia for co-skewness and co-kurtosis.