A Three-Moment International Asset-Pricing Model: Theory and Evidence

We develop a three-moment international asset-pricing model (TM-IAPM) that prices coskewness and embeds the standard IAPMs as special cases. We use the model to investigate the time-series behavior of market, size, value, and momentum premiums in the United States, Japan, and the United Kingdom equity markets. We find that the model explains most of the variation of these premiums during the 1980s and 1990s and that the coskewness risk is more important than covariance risk.