Taiwan stock market and four-moment asset pricing model
ABSTRACT This paper provides a detailed investigation of the risk-return characteristics of the Taiwan stock market. First, the stock market and individual stock return distributions were examined for the presence of co-skewness, excess kurtosis and their persistence. Next, a four-moment conditional CAPM was tested in up- and down-market conditions. Results of the investigation show that investors expect a lower (higher) return when the distribution of stock returns demonstrates positive co-skewness (co-kurtosis). In addition, results show evidence of the relative importance of the co-skewness and the co-kurtosis risks, compared with that of the covariance risk in explaining stock return variations. This is particularly evident over the up-market subperiods.