A New Test of the Three-Moment Capital Asset Pricing Model

Abstract

This paper tests the Kraus-Litzenberger (1976) three-moment capital asset pricing model using Hansen's (1982) generalized method-of-moments (GMM). The GMM approach does not impose strong distributional assumptions on the asset returns. This is an interest? ing issue since there is no obvious multivariate distribution for returns that also exhibits co-skewness. Using monthly stock returns to test the model, there is some evidence that systematic skewness is priced.