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The relevance of the study is due to the fact that in the conditions of the financialization of the economy, shocks arising in one market can spread rapidly and intensively to other markets, generating the effects of financial contagion. This fully applies to the commodity markets, which occupy a large share of exchange trading. The resulting excess volatility risks should be taken into account both by financial market players when developing optimal portfolio strategies, and by the state when adjusting anti-crisis policy. The purpose of the study is to identify financial contagion in commodity markets during periods of financial stress caused by the pandemic and sanctions, to determine the direction and extent of intermarket contagion. The novelty of the study lies in the construction of stress indices to separate periods of increased volatility in commodity markets, in the application of statistical tests for the co-moments of the return distribution to identify the financial contagion between the markets of energy (oil and gas), precious and non-ferrous metals during the pandemic and sanctions. The result of the study is the identification of a period of increased volatility in commodity markets and its division into two sub-periods based on turning points in the stress index, establishing the direction and extent of financial contagion between commodity markets during these periods. It is concluded that stress in commodity markets is accompanied by intense financial contagion. Moreover, volatility contagion turns out to be higher than return contagion and even higher than contagion caused by anomalies in the return distribution. The main sources and receivers of contagion in different periods are the markets of precious and some non-ferrous metals, and in the period from February 2018 to December 2020, also the oil market. At the same time, the gas market before SMO has demonstrated relative independence from other commodity markets, which made it possible to recommend gas futures as a tool for hedging investment portfolios during a period of increased financial stress.

For a sample of US commercial banks, we find that during the Global Financial Crisis of 2007–2009 and the COVID‐19 pandemic of February–December 2020, bank returns were positively related to their coskewness with the market return, while the relationship was negative during stable periods. The literature on non‐financial firms and global equity indices has shown that the relationship between coskewness and stock returns is time‐variant. The findings of this study extend that evidence to banks. The interpretation is that in normal times, investors show a preference for "lotteryness," and therefore they are willing to pay a premium for bank stocks with a high coskewness (i.e., low expected return). In contrast, during crises, stocks with a high coskewness are more likely to suffer deep losses, and investors are reluctant to demand these risky high returns. These findings deliver important insights into how to interpret bank capital costs throughout the business cycle, as we suggest that during crises the issuance of equity capital becomes more costly for banks because investors demand higher coskewness risk premiums. [ABSTRACT FROM AUTHOR]

This paper investigates the low risk anomaly, which suggests that less risky stocks outperform riskier ones. Focusing on the European stock market, the present study examines the influence of coskewness, a measure of asymmetry in stock returns with respect to the market return. Stocks are sorted into 2x5 quintile portfolios based on coskewness and beta volatility. Regression analysis using Fama-French three and five factor models reveals a significant low risk anomaly in the low coskewness category, where less risky portfolios consistently outperform riskier ones. However, as coskewness increases, the low risk anomaly weakens and loses significance. In the high coskewness category, less risky portfolios no longer consistently outperform riskier ones. In other words, accounting for coskewness significantly lowers the profitability of low risk and betting-against-beta strategies in Europe. These findings enhance the understanding of the relationship between risk and returns in the European market. [ABSTRACT FROM AUTHOR]

This paper investigates, for the first time, the presence of financial contagion among several important Chinese coronavirus concept-based stock indices during the recent COVID-19 global pandemic. We utilize a regime-switching skew-normal (RSSN) methodology to test for contagion through the correlation and coskewness channels while considering structural breaks in the different moments. Our results present evidence of contagion effects, which are robust across identified crisis and non-crisis periods, including that of the Wuhan lockdown. Our empirical results offer investors and policy-makers an additional layer of information when evaluating response mechanisms to major crises through the use of concept-based indices. [ABSTRACT FROM AUTHOR]

The topic is of particular interest given the asymmetric relationship documented by numerous studies between the stock market and Bitcoin, yet the quantification of this asymmetry and its implications for Bitcoin excess return have been less explored. This study investigates the role of coskewness (asymmetry) between the stock market and Bitcoin returns in predicting the excess returns of Bitcoin. Drawing on data from January 2014 to March 2021, this study uses empirical analysis to demonstrate that the daily coskewness between Bitcoin excess returns and stock market index excess returns significantly forecasts Bitcoin's following-day excess returns. Significantly, this is true for both the in-sample and out-of-sample performances. For the forecast evaluation, we employed the R oos 2 criterion, and the test used for its evaluation was based on the methodology proposed by Clark and West (2007). The robustness tests further validate the importance of coskewness as an informative indicator for forecasting excess Bitcoin returns. The subsequent analysis illustrates that incorporating coskewness as an added predictor in the univariate factor model can improve the forecasting of returns and economical significance. Consequently, these findings offer insightful implications for investors who aim to hedge risks and develop informed investment strategies. For example, considering coskewness can lead to a utility gain of 0.128% in a univariate factor model. • The asymmetric dependence between Bitcoin and S&P 500 returns has predictive power. • The non-parametric test is applied to examine the predictive power of co-skewness. • We find that the co-skewness is robust in predicting Bitcoin returns. • We find that co-skewness can generate significant economic benefits. [ABSTRACT FROM AUTHOR]

Decision-making in finance often requires an accurate estimate of the coskewness matrix to optimize the allocation to random variables with asymmetric distributions. The classical sample estimator of the coskewness matrix performs poorly for small sample sizes. A solution is to use shrinkage estimators, defined as the convex combination between the sample coskewness matrix and a target matrix. We propose unbiased consistent estimators for the MSE loss function and include the possibility of having multiple target matrices. In a portfolio application, we find that the proposed shrinkage coskewness estimators are useful in mean–variance–skewness efficient portfolio allocation of funds of hedge funds. [ABSTRACT FROM AUTHOR]

Joint tests of contagion are derived which are designed to have power where contagion operates simultaneously through coskewness, cokurtosis and covolatility. Finite sample properties of the new tests are evaluated and compared with existing tests of contagion that focus on a single channel. Applying the tests to daily euro zone equity returns from 2005 to 2014 shows that contagion operated mainly through higher order moment channels during the GFC and the European debt crisis, which were not necessarily detected by traditional tests based on correlations. The empirical results have important implications for pricing risk and constructing well diversified portfolios. [ABSTRACT FROM AUTHOR]

In this study, we inspected the market timing ability and stock selectivity of mutual fund in a high volatile market - emerging market. The high level of volatility - risk, mean and variance approach are not sufficient to estimate the portfolio risk and return. To match the model with the environment of high risk and high return, we apply the coskewness risk factor - which is an unavoidable skewness risk, as another important risk in emerging market study. Our finding showed that the factor effectively supports the market timing ability of mutual fund manager in Thai market. The outcome further supports the prior belief that the return in emerging markets are more predictable than the developed market. Therefore, we examine the positive and significant market timing ability in all portfolio regardless their performance. We discover that the mutual fund manager prefers the positive skewness, particularly the poor performance-fund. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

We are using a conditional skewness and coskewness model for the log-returns on the most liquid Romanian stocks in order to identify the individual and common asymmetries for the period between January 2010 and September 2015. A Markov switching analysis for all the series revealed the moments when the coskewness coefficient for the theoretical portfolio changed regimes and also the moments when the individual skewness coefficients switched their levels simultaneously. We provide a comment on these changes and their possible implications for risk management and direction of change. [ABSTRACT FROM AUTHOR]

Abstract: This study examines contagion across equity and securitized real estate markets of Hong Kong, US and UK during the global financial crisis by the Forbes–Rigobon, coskewness and cokurtosis tests. In particular, this is the first study to use the cokurtosis test to examine contagion between real estate and equity markets. The results show that the cokurtosis test can detect additional channels of contagion, and hence is a more powerful test. In contrary to Fry et al. (2010), we find that the cokurtosis test shows a highly significant evidence of contagion between the equity and real estate markets in both directions. In particular, the contagion between US’s equity and real estate markets is the most significant. This reflects that US is the centre of shock of the global financial crisis. [Copyright &y& Elsevier]

Episodes of extraordinary turbulence in global financial markets are examined during nine crises ranging from the Asian crisis in 1997-98 to the recent European debt crisis of 2010-13. After dating each crisis using a regime switching model, the analysis focuses on changes in the dependence structures of equity markets through correlation, coskewness and covolatility to address a range of hypotheses regarding contagion transmission. The results show that the great recession is a true global financial crisis. Finance linkages are more likely to result in crisis transmission than trade and emerging market crises transmit unexpectedly, particularly to developed markets. [ABSTRACT FROM AUTHOR]

The aim of this paper is to investigate the contagion across real estate markets of four countries: Hong Kong, China, U.S. and U.K., during the financial tsunami in 2008. We use the Forbes-Rigobon test, the coskewness test and the cokurtosis test. We propose a new cokurtosis test constructed by extending the method of constructing the coskewness test to further higher order moments. It can show additional channels of contagion that other tests fail to show, and hence can provide more information on the direction of contagion, and reflect a more complete picture of the contagion pattern. The coskewness and cokurtosis tests show that contagion exists between the four countries, and the contagion effect is stronger between Hong Kong and China, and between U.S. and U.K. This provides clues for investors on how to diversify their investment to reduce their risk. This paper bridges the gap that previous works on contagion across real estate markets give mixed results, and gives a first insight into the contagion pattern of global real estate markets during the financial tsunami.

Abstract: Despite the fact that it is easy to see intuitively why skewness and coskewness should matter for asset pricing, it is difficult to build a model that links analytically skewness premia to deep structural parameters governing preferences and the distribution of shocks. This paper takes up the challenge and studies the effect of skewness and coskewness on asset valuation. To reach this important goal, asset returns skewness is modeled with promising Azzalini’s [1985. Scandinavian Journal of Statistics 12, 171–178] skew-normal distribution. With this assumption, we are now able to derive explicit expressions of assets skewness premiums and to shed a new light on asset valuation. [Copyright &y& Elsevier]

This paper aims to investigate the contagion across European securitised real estate markets during the European sovereign debt crisis by the Forbes–Rigobon test, the coskewness test and the cokurtosis test. The new cokurtosis test is constructed by extending the method of constructing the coskewness test to further higher order moments. The results reveal that the cokurtosis test can show additional channels of contagion of which the other tests fail to show, and hence can provide more information on the direction of contagion, and reflect a more complete picture of the contagion pattern. This study has implications to investors and policy-makers. During a crisis, investors should reallocate their portfolio to reduce their loss. Policy-makers should cooperate with other authorities and act accordingly in order to stabilise the economy. [ABSTRACT FROM AUTHOR]

The aim of this paper is to investigate the contagion across real estate markets of four countries: Hong Kong, China, U.S. and U.K., during the financial tsunami in 2008. We use the Forbes-Rigobon test, the coskewness test and the cokurtosis test. We propose a new cokurtosis test constructed by extending the method of constructing the coskewness test to further higher order moments. It can show additional channels of contagion that other tests fail to show, and hence can provide more information on the direction of contagion, and reflect a more complete picture of the contagion pattern. The coskewness and cokurtosis tests show that contagion exists between the four countries, and the contagion effect is stronger between Hong Kong and China, and between U.S. and U.K. This provides clues for investors on how to diversify their investment to reduce their risk. This paper bridges the gap that previous works on contagion across real estate markets give mixed results, and gives a first insight into the contagion pattern of global real estate markets during the financial tsunami. [ABSTRACT FROM AUTHOR]

Asset pricing models have been a constant theme in finance research. Since the Capital Asset Pricing Model (CAPM) proposed by Sharpe (1964), such models linearly relate the expected rate of returns of an asset or portfolio of assets with systemic risk factors. This research presents a test of a pricing model with risk factors based on statistical comoments and using a Brazilian dataset. The proposed model is an extension of the original CAPM with the addition of coskewness and cokurtosis between stock rates of return and the market portfolio rates of return. The effects of other variables such as market to book value, financial leverage and a negotiability index served as control variables. The sample consisted of 179 non-financial Brazilian companies traded on BM&FBovespa with data available from 2003 to 2007. Annual systemic moments were calculated from weekly rates of return. They were then tested on a pricing model in order to check for the existence of a risk premium associated with each of these risk measures. We employed a Generalized Method of Moments (GMM) panel data analysis. The use of GMM aims to address potential problems of endogeneity and simultaneous determination of the data, avoiding the occurrence of bias in the estimates. The estimation results show that the relationship between rates of return and covariance and cokurtosis are statistically significant. The results were robust to alternative model specifications. This research contributes to the literature by presenting empirical evidence that there is a Brazilian risk premium associated with systemic moments. [ABSTRACT FROM AUTHOR]

The article presents an empirical validation for mean-variance CAPM, using a Downside and Higher-moment framework of CAPM in the Russian stock market. The authors test the unconditional and conditional CAPM specifications on a sample of weekly returns of the most liquid Russian stocks over the financially stable period of 2004-2007 and over the crisis period of 2008-2009. The primary contribution of this study is ranking the models with respect to their explanatory power of cross-sectional return variations. The unconditional classical CAPM (where market risk is approximated by the beta coefficient) is compared to the downside (mean-semivariance) CAPM extended to incorporate the third (skewness) and fourth (kurtosis) moments. The ranking methodology is based on Fama and MacBeth's (1973) two-stage estimation procedure. The unconditional CAPMs prove to have low explanatory power for the financially stable period and test results that are not statistically significant for the crisis period. Incorporating additional risk measures of the third and fourth moments and adopting one-sided risk measures only slightly increases the explanatory power. The highest explanatory power is offered by the unconditional CAPM of the Harlow-Rao downside systematic risk measure with zero benchmark. Our study confirms the feasibility of employing conditional CAPMs extended for systematic asymmetry (co-skewness) and systematic kurtosis (co-kurtosis) for the Russian stock market since these models display better explanatory power for cross-sectional return variations. [ABSTRACT FROM AUTHOR]

A new class of tests of contagion is proposed identifying transmission channels of financial market crises through changes in higher order moments of the distribution of returns such as coskewness. Applying the framework to test for contagion in real estate and equity markets following the Hong Kong crisis in 1997-1998 and the U.S. subprime crisis in 2007 shows that the coskewness-based tests of contagion detect additional channels not identified by the correlation-based tests. Implications of contagion in pricing exchange options where there is a change in higher order comoments of returns on the underlying assets are also investigated. [ABSTRACT FROM AUTHOR]

Abstract: Multivariate statistical analysis relies heavily on moment assumptions of second order and higher. With increasing interest in heavy-tailed distributions, however, it is desirable to describe dispersion, skewness, and kurtosis under merely first order moment assumptions. Here, the univariate L-moments of Hosking [L-moments: analysis and estimation of distributions using linear combinations of order statistics, J. Roy. Statist. Soc. Ser. B 52 (1990) 105–124] are extended to “L-comoments” analogous to covariance. For certain models, the second order case yields correlational analysis coherent with classical correlation but also meaningful under just first moment assumptions. We develop properties and estimators for L-comoments, illustrate for several multivariate models, examine behavior of sample multivariate L-moments with heavy-tailed data, and discuss applications to financial risk analysis and regional frequency analysis. [Copyright &y& Elsevier]

We present hedge fund performance estimates that adjust for stale prices, Fama-French risk factors and skewness. We contrast these new performance estimates with traditional performance measures. Using three-factor models to adjust for staleness in prices and to incorporate Fama-French factors along with the Harvey-Siddique (2000) two-factor model that incorporates skewness, we find that for the period 1990–2003, all hedge fund categories achieve above average performance when measured against an aggregate market index. More significantly, however, when we estimate performance at the individual hedge fund level, we discover that only 40 to 47% of the funds are shown to achieve an above average performance over that time period depending on the model used. These results have important implications for investors, endowments and pensions when they choose hedge fund managers. [ABSTRACT FROM AUTHOR]

Abstract: We consider the robustness of the least-squares inference of linear asset pricing models. We evaluate the asymptotic covariance matrices of the least-squares estimator of alphas and betas when the joint distribution of factors and error terms is independently and identically distributed without making any specific distributional assumptions. When the standard assumption of conditional homoskedasticity for the conditional covariance matrix of error terms given factors does not hold, we show the asymptotic covariance matrix for betas depends only on cokurtosis of factors and error terms while the asymptotic covariance matrix for alphas depends on cokurtosis as well as coskewness of factors and error terms. This implies the inference of betas is not affected by skewness of the underlying joint distribution. Numerical examples are provided using Fama and French''s benchmark portfolio returns and factors. [Copyright &y& Elsevier]