City Research Online

Moment Risk Premia and Stock Return Predictability

Fan, Z., Xiao, X. ORCID: 0000-0002-0564-9795 & Zhou, H. (2022). Moment Risk Premia and Stock Return Predictability. Journal of Financial and Quantitative Analysis, 57(1), pp. 67-93. doi: 10.1017/s002210902000085x


We study the predictive power of option-implied moment risk premia embedded in the conventional variance risk premium. We find that although the second-moment risk premium predicts market returns in short horizons with positive coefficients, the third-moment (fourth-moment) risk premium predicts market returns in medium horizons with negative (positive) coefficients. Combining the higher-moment risk premia with the second-moment risk premium improves the stock return predictability over multiple horizons, both in sample and out of sample. The finding is economically significant in an asset-allocation exercise and survives a series of robustness checks.

Publication Type: Article
Additional Information: This article has been published in a revised form in Journal of Financial and Quantitative Analysis This version is free to view and download for private research and study only. Not for re-distribution or re-use. © copyright holder.
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
[thumbnail of SSRN-id3120260.pdf]
Text - Accepted Version
Download (482kB) | Preview


Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email


Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login