Abstract
ABSTRACT We investigate the role of co-skewness in pricing stock returns in the Chinese and U.S. markets. In both markets, co-skewness is priced with a negative premium. The annualized factor-adjusted co-skewness effect is −7.98% in China and −3.53% in the U.S. The negative co-skewness effect coexists with other higher-moment-related pricing effects. Through two natural experiments in the Chinese and U.S. markets, we find that an improvement in the information environment greatly enhances the co-skewness pricing effect in both markets. Furthermore, we find that the governance structure and the efficiency level are the main determinants of the co-skewness premium in the Chinese market.
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