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Realized Skewness

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  • Anthony Neuberger
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    Abstract

    The third moment of returns is important for asset pricing, but it is hard to measure precisely, particularly at long horizons. This paper proposes a definition of the realized third moment that is computed from high-frequency returns. It provides an unbiased estimate of the true third moment of long-horizon returns, doing for the third moment what realized variance does for the second moment. The methodology is used to demonstrate that the skewness of equity index returns, far from diminishing with horizon, actually increases with horizons up to a year, and its magnitude is economically important. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com. , Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/rfs/hhs101
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    Bibliographic Info

    Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

    Volume (Year): 25 (2012)
    Issue (Month): 11 ()
    Pages: 3423-3455

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    Handle: RePEc:oup:rfinst:v:25:y:2012:i:11:p:3423-3455

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    Cited by:
    1. Roman Kozhan & Anthony Neuberger & Paul Schneider, 2013. "The Skew Risk Premium in the Equity Index Market," Review of Financial Studies, Society for Financial Studies, vol. 26(9), pages 2174-2203.
    2. Sang Byung Seo & Jessica A. Wachter, 2013. "Option Prices in a Model with Stochastic Disaster Risk," NBER Working Papers 19611, National Bureau of Economic Research, Inc.
    3. Carol Alexander & Johannes Rauch, 2014. "Discretisation-Invariant Swaps," Papers 1404.1351, arXiv.org.
    4. Bruno Feunou & Mohammad R. Jahan-Parvar & Roméo Tedongap, 2013. "Which Parametric Model for Conditional Skewness?," Working Papers 13-32, Bank of Canada.
    5. Huang, Huichou & MacDonald, Ronald & Zhao, Yang, 2012. "Global Currency Misalignments, Crash Sensitivity, and Downside Insurance Costs," MPRA Paper 53745, University Library of Munich, Germany, revised 18 Nov 2013.
    6. Kyungsub Lee, 2013. "Probabilistic and statistical properties of realized moments and their use in inference, estimation and risk management," Papers 1311.5036, arXiv.org.
    7. Geon Ho Choe & Kyungsub Lee, 2013. "High moment variations and their application," Papers 1311.4973, arXiv.org.
    8. Alejandro Balbás & Beatriz Balbás & Raquel Balbás, 2013. "On the inefficiency of Brownian motions and heavier tailed price processes," Business Economics Working Papers id-13-01, Universidad Carlos III, Instituto sobre Desarrollo Empresarial "Carmen Vidal Ballester".
    9. Diego Amaya & Peter Christoffersen & Kris Jacobs & Aurelio Vasquez, 2013. "Does Realized Skewness Predict the Cross-Section of Equity Returns?," CREATES Research Papers 2013-41, School of Economics and Management, University of Aarhus.

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