Asymmetric Risk And Cross-sectional Return In A-share Market

Differing from the frame of traditional beta coefficient, asymmetric risk in stock return is a problem outstanding especially in emerging markets. Study on the relationship between asymmetric risk and cross-sectional risk not only helps understand the risk-return characteristic, but benefits the investor with the construction of investment portfolios. After carding the theory about asymmetric risk measure, the paper utilizes daily excess return of all stocks in A-share market in 2002-2016 to systematically test for the asymmetric risk premium.The empirical work includes two parts, of which the first if to check the contemporaneous relationship between asymmetric risk and cross-sectional return. The result shows that comparing with beta, asymmetric risk factor has a stronger explaining effect in Chinese stock market. After several control tests, the paper select three better risk factors, respectively skew, cokurt and relative upside beta.The second part starts with the three selected factors. The paper inspects that whether the past risk factor can effectively predict the future risk factor as well as the future return. The result says that the autocorrelation of asymmetric risk factos is realtively low. When sorting by the past factor, the future return pattern have a reverse effect. The reason might be that the past factor can not guarantee enough range of future one and the sorting result of individual stock is volatile over time.