Abstract
Recent research has studied the impact of asymmetry on cost of capital estimation, performance evaluation, and optimal portfolio composition. This study examines the impact of skewness preference on the risk premium of a gamble. The three-moment analogue of the Pratt-Arrow risk premium is derived for asymmetric gambles that are not necessarily actuarially neutral. It is seen that the standard Pratt-Arrow risk premium is biased down (up) for an actuarially neutral gamble that has positive (negative) skew.
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