A Study On Skewness Risk:the Behavioral Finance Perspective

Financial risks have been commonly found in the financial markets, while the accurate measurement of financial risks and the exact description of the characteristics of the financial risks have been the core of the financial study. Meanwhile, these studies can provide a strong theoretical basis for avoiding the risk, and it has also been widespread concerned by investors. In the past few decades, Markowitz established mean - variance analysis framework that has been well known to most people, while many other scholars made a series of fruitful research results, and the theoretical system is being completed. However, this analytical framework is actually a discussion of financial risks which be limited to the range of second moments, and this framework is not enough about the discussion for the third moment and the risk of higher order moments. This paper discussed the skewness risk (the risk of third moment) of the relevant issues in the behavioral finance perspective, including the causes of the skewness risk and the time-varying characteristics of skewness.The main research content and innovations are as follows:1. BHS (2001) proposed a linear value function under a modified form. This paper considers not only the House money effect, but takes a offset effects into account.2. On the basis of amending the linear value function, this paper considers a nonlinear form of the value function, constructing a two-stage model of power function value function. We use this model to study the risk attitude of the current period when it is influenced by prior outcomes.3. To empirically reseach on the hypothsis concerned above, we make an amendment on the GARCH-M model.Using the modified model including time-varying risk premium coefficient, which considers the impact of prior outcomes, we do an empirical research in the market.4. Considering an existing model can not be used to investigate in the relationship between speculation and skewness at the time dimension, we make a further amendment of the GARCH-M model, which contains a time-varying process of the risk premium coefficient and a process of conditional skewness, and then we propose a new model: GARCHS-M model with time-varying risk premium coefficient. After giving the estimation method, an empirical study has also been given.