Abstract

We show that a highly statistically significant total skewness risk premium is embedded in the cross-section of returns within a large universe of multi-asset futures and forwards, within a broad set of 215 long/short style factors formed on that universe, and within the cross-sectional equity factor zoo. The skewness risk premium is most robust when it is measured in a relatively new, intuitive way that minimizes the impact of outliers while still capturing information in the tails, which we demonstrate by evaluating five candidate methods across a battery of empirical tests. We show there is compensation for bearing skewness risk in both the long run and ex ante on a point-in-time basis available to investors.