Risk aversion and skewness preference

Thierry Post, Pim van Vliet, Haim Levy

Research output: Contribution to journalArticlepeer-review

71 Citations (Scopus)


Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectional variation of mean return not explained by beta. This finding is typically interpreted in terms of a risk averse representative investor with a cubic utility function. This paper questions this interpretation. We show that the empirical tests fail to impose risk aversion and the implied utility function takes an inverse S-shape. Unfortunately, the first-order conditions are not sufficient to guarantee that the market portfolio is the global maximum for this utility function, and our results suggest that the market portfolio is more likely to represent the global minimum. In addition, if we do impose risk aversion, then co-skewness has minimal explanatory power.

Original languageEnglish
Pages (from-to)1178-1187
Number of pages10
JournalJournal of Banking and Finance
Publication statusPublished - Jul 2005


  • 3M CAPM
  • Asset pricing
  • Asymmetry
  • Co-skewness

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Risk aversion and skewness preference'. Together they form a unique fingerprint.

Cite this