Mind Coskewness: A Performance Measure for Prudent, Long-Term Investors

Abstract

This study examines the impact of negative skewness to preferences and asset pricing. Furthermore, it shows how intertemporal risk premia can be interpreted as negative skewness. Hence, a new performance measure, the intercept of the Harvey-Siddique two-factor asset pricing model is proposed for prudent, long-term investors. Using this model, the performance of UK unit trusts is examined over the period 1991-2005. Despite exhibiting significantly negative managerial ability, trust managers were successful in reaping part of the coskewness premium, which was, on average, 2.09% p.a.