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Asymmetric Volatility, Skewness, and Downside Risk in Different Asset Classes: Evidence from Futures Markets
Author(s) -
Tse Yiuman
Publication year - 2016
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12095
Subject(s) - downside risk , futures contract , volatility (finance) , economics , capital asset pricing model , skewness , financial economics , volatility risk , econometrics , implied volatility , volatility risk premium , portfolio
This study examines the cross‐sectional variation of futures returns from different asset classes. The monthly returns are positively correlated with downside risk and negatively correlated with coskewness. The asymmetric volatility effect generates negatively skewed returns. Assets with high coskewness and low downside betas provide hedges against market downside risk and offer low returns. The high returns offered by assets with low coskewness and high downside betas are a risk premium for bearing downside risk. The asset pricing model that incorporates downside risk partially explains the futures returns. The results indicate a unified risk perspective to jointly price different asset classes.