Multifactor asset pricing model incorporating coskewness and cokurtosis: the evidence from Asian mutual funds

Abstract

This research adds cokurtosis risk factor as a new factor into Moreno and Rodriguez (2009) five-factor model to be six-factor model to evaluate the equity mutual fund performance of three selected countries in Asia - China, Singapore and Thailand as representatives of fast growing Asian countries. To my knowledge, this is the first research to incorporate both coskewness and cokurtosis risk factors into Carhart (1997) four-factor model, to become a six-factor model, to explain the equity mutual fund returns. The result shows that coskewness risk factor show significance in Singapore for mutual fund evaluation. There are some little sign of mild support for the pricing of cokurtosis in Singapore and Thailand too. In China, even coskewness is not statistically but shows economically significantly difference at 2.7% per month. Adding coskewness and cokurtosis risk factors in CAPM or Carhart (1997), four-factor model show little increment in the explanatory power of the models.