Much attention is paid to portfolio variance, but skewness is also important for both portfolio design and asset pricing. We revisit the empirical research on systematic skewness that we initiated 25 years ago. In an out-of-sample test, we find that the risk premium associated with skewness is...

If asset returns have systematic skewness, expected returns should include rewards for accepting this risk. We formalize this intuition with an asset pricing model which incorporates conditional skewness. Our results show that conditional skewness helps explain the cross-sectional variation of...

We present a framework for modeling and estimating dynamics of variance and skewness from time-series data using a maximum likelihood approach assuming that the errors from the mean have a non-central conditional t distribution. We parameterize conditional variance and conditional skewness in an...

Factor-based asset pricing models have been used to explain the common predictable variation in excess asset returns. This paper combines means with volatilities of returns in several futures markets to explain their common predictable variation. Using a latent variables methodology, tests do...

Many previous studies document a positive relation between research and development (Ramp;D) and equity value. Though Ramp;D can increase equity value by increasing firm value, it can also increase equity value at the expense of bondholder wealth through an increase in firm risk because equity...

We examine a sample of 8,313 cases, between 1951 and 2001, where firms unexpectedly increase their research and development expenditures (Ramp;D) by a significant amount. We find consistent evidence of a mis-reaction, as manifested in the significantly positive abnormal stock returns that our...

Previous studies document negative long-term abnormal stock returns following seasoned equity offering (SEO) issuances, and conclude that markets are inefficient. Other studies, however, argue that these results are a manifestation of risk mismeasurment (i.e., the bad model problem), not market...

Single factor asset pricing models face two major hurdles: the problematic time-series properties of the ex ante market risk premium and the inability of the risk measure to account for a substantial degree of the cross-sectional variation of expected excess returns. We provide an explanation...

Many previous studies document a positive relation between research and development (Ramp;D) and equity value. Though Ramp;D can increase equity value by increasing firm value, it can also increase equity value at the expense of bondholder wealth through an increase in firm risk because equity...