Abstract: Motivated by the Internet bubble in the late 1990’s and early years of this century, we explore the possibility that higher moments of the returns distribution may be important in explaining security returns. Using a sample of option prices from 1996-2005, we estimate individual securities’ volatility, skewness and kurtosis using the method of Bakshi, Kapadia and Madan(2003). We find that higher moments are strongly related to returns, even after controlling for differences in size and book-to-market. Consistent with Ang, Hodrick, Xing and Zhang(2006), we find a negative relation between cross-sectional volatility and returns. We also find a significant relation between skewness and returns, with more negatively skewed returns associated with subsequent positive returns. Kurtosis has a strong positive relation with returns. In an examination of industry portfolios, we and that technology stocks have strikingly higher exposure to skewness risk, and, in a cross-sectional test, we and evidence that higher moments are priced.