Journal of Financial and Quantitative Analysis Vol. 61 No. 4 2026

Skewness Risk Premia and the Cross Section of Currency Returns

Junye Li¹; Lucio Sarno²; Gabriele Zinna³

¹ Fudan University · ² Cambridge Judge Business School and Girton College, University of Cambridge · ³ Bank of Italy

Abstract

Using model-free skewness measures that exploit the asymmetry in semivariances and option data from the over-the-counter currency market, we find that buying currencies with a high skewness risk premium (SRP) and selling currencies with a low SRP generates high returns and a Sharpe ratio. Asset pricing tests—which control for omitted variables and measurement errors—show that a SRP factor enters the currency pricing kernel and is central to the pricing of risks inherent in a broad currency cross section of 60 portfolio excess returns. These results imply that skewness risk is a strong and priced source of currency risk.

DOI

10.1017/s0022109025102123

Volume

61

Issue

4

Pages

1565-1603

Language

en

Sources

openalex crossref

Cite

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