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Investor sentiment and skewness risk premium

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  • Soumaya Yaakoubi

Abstract

This paper provides new evidence on the pricing of market skewness risk by incorporating investor sentiment in the relation between sensitivity to innovations in implied market skewness and expected stock returns. Using both univariate and multivariate specifications, we conduct an extensive series of asset pricing tests on the cross-section of stocks during high and low sentiment periods separately. We find that market skewness risk carries a negative premium that cannot be explained away by known risk factors when sentiment is low. In contrast, the results are not conducive to a risk explanation when sentiment is high.

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  • Soumaya Yaakoubi, 2024. "Investor sentiment and skewness risk premium," Applied Economics, Taylor & Francis Journals, vol. 56(35), pages 4194-4208, July.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:35:p:4194-4208
    DOI: 10.1080/00036846.2023.2210822
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