The Impact of Investors’ Risk Attitudes on Skewness of return Distribution

This paper builds a GARCHC-M model to explore the effect of the gain or loss on investors’ risk attitudes on the basis of the previous studies of time-varying risk compensation. Then we introduce the risk attitude in GARCHS model's skewness equation and develop a GARCHCS-M model to study its effect on the return skewness. The data of composite indexes of stocks whose market values rank the top ten among the global stock exchanges in 2011 are used to make an empirical study. Results show that investors’ risk attitudes are affected by current gains or losses and investors risk aversion improves with increasing gains and decreases with increasing losses. At the same time, investors’ risk attitudes affect skewness of return distribution; their risk aversion decrease the return skewness while risk seeking increase the return skewness.