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Conditional Coskewness in Stock and Bond Markets: Time-Series Evidence

Author

Listed:
  • Jian Yang

    (Business School, University of Colorado Denver, Denver, Colorado 80217)

  • Yinggang Zhou

    (Faculty of Business Administration, Chinese University of Hong Kong, Hong Kong, People's Republic of China)

  • Zijun Wang

    (Private Enterprise Research Center, Texas A& M University, College Station, Texas 77843)

Abstract

In the context of a three-moment intertemporal capital asset pricing model specification, we characterize conditional coskewness between stock and bond excess returns using a bivariate regime-switching model. We find that both conditional U.S. stock coskewness (the relation between stock return and bond volatility) and bond coskewness (the relation between bond return and stock volatility) command statistically and economically significant negative ex ante risk premiums. The impacts of stock and bond coskewness on the conditional stock and bond premiums are quite robust to various model specifications and various sample periods, and also hold in another major developed country (the United Kingdom). The findings also carry important implications for portfolio management.

Suggested Citation

  • Jian Yang & Yinggang Zhou & Zijun Wang, 2010. "Conditional Coskewness in Stock and Bond Markets: Time-Series Evidence," Management Science, INFORMS, vol. 56(11), pages 2031-2049, November.
    • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:11:p:2031-2049
    DOI: 10.1287/mnsc.1100.1237
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