Global coskewness and the pricing of Finnish stocks: empirical tests

Abstract

This paper examines the empirical performance of a global conditional three-moment CAPM. We employ monthly Finnish stock market data for 1987–1995. To explore the robustness of the three-moment model, we also examine whether local equity market returns, exchange rate fluctuations and movements in overall stock market turnover come into play after accounting for global market portfolio risk exposures. Our findings indicate that these additional factors are not generally able to detect deviations from the three-moment CAPM and time-varying global coskewness affects the cross-section of expected returns on local size portfolios even after accounting for other factors.