Market Moment Spreads and the Cross Section of Expected Returns

Download or read book Market Moment Spreads and the Cross Section of Expected Returns written by Xinfeng Ruan and published by . This book was released on 2019 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we extend the variance risk premium (VRP) in Bollerslev and Tauchen and Zhou (2009) into the moment spreads. Rather than analyzing the times-series market returns predictability, we newly investigate the predictability of market moment spreads in the cross section of expected returns, taking the case of the energy market. By using univariate and multivariate portfolio sorts, we find strong evidence that the kurtosis spread (KTS) has a significantly negative risk premium. The cross-sectional regressions document that there is a significantly negative relation between the KTS betas and the future energy stock returns. We cannot find supportive evidence that the VRP and the skewness spread (SKS) can predict the cross section of the future stock returns in the energy sector. Robustness tests further confirm our observations.