The Value Premium of Skewness in the Existence of Cross-section Dependence

The main contribution of this paper is to the broader understanding of risk premium in the financial stocks of S&P 500. We utilize the model based on the arbitrage pricing theory (APT) with the two source of risk, variance, and skewness on the daily basis. These two risk measures were estimated from the minute high-frequency data. The next we relax the assumption about no cross-sectional dependence and so we allowed the existence of the common factors influence all analyzed stocks. We found that both factors have the statistically significant impact on the return. The next the variance is negatively correlated with the return and skewness is positively correlated with the return. It means that the investors prefer volatility and negatively skew financial stocks which could imply the speculative behavior of the investors during the period 11.12.2007 to the 29.11.2016.