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The Skewness Risk in the Energy Market

Author

Listed:
  • Jungah Yoon

    (Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin 9054, New Zealand)

  • Xinfeng Ruan

    (Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin 9054, New Zealand)

  • Jin E. Zhang

    (Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin 9054, New Zealand)

Abstract

In this paper, we study the skewness risk and its return predictability in the energy market. Skewness risk is often used to measure the possibility of market crash. We study both physical skewness (market skewness and cross-sectional average realized skewness) estimated from underlying stock returns and risk-neutral skewness evaluated from the options market. We find a significant positive relationship between one-month-ahead market return and average realized skewness in the energy market. This unique feature should be noted by investors and carefully considered by energy policymakers.

Suggested Citation

  • Jungah Yoon & Xinfeng Ruan & Jin E. Zhang, 2021. "The Skewness Risk in the Energy Market," JRFM, MDPI, vol. 14(12), pages 1-24, December.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:12:p:620-:d:706839
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