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Does Realized Skewness Predict the Cross-Section of Equity Returns?

  • Diego Amaya

    ()

    (University of Quebec at Montreal (UQUAM))

  • Peter Christoffersen

    ()

    (University of Toronto and CREATES)

  • Kris Jacobs

    ()

    (University of Houston)

  • Aurelio Vasquez

    ()

    (Instituto Tecnológico Autónomo de México (ITAM))

We use intraday data to compute weekly realized variance, skewness, and kurtosis for equity returns and study the realized moments? time-series and cross-sectional properties. We investigate if this week?'s realized moments are informative for the cross-section of next week'?s stock returns. We ?find a very strong negative relationship between realized skewness and next week?'s stock returns. A trading strategy that buys stocks in the lowest realized skewness decile and sells stocks in the highest realized skewness decile generates an average weekly return of 24 basis points with a t-statistic of 3.65. Our results on realized skewness are robust across a wide variety of implementations, sample periods, portfolio weightings, and firm characteristics, and are not captured by the Fama-French and Carhart factors. We ?find some evidence that the relationship between realized kurtosis and next week?'s stock returns is positive, but the evidence is not always robust and statistically significant. We do not find a strong relationship between realized volatility and next week?'s stock returns.

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Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2013-41.

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Length: 48
Date of creation: 02 2013
Date of revision:
Handle: RePEc:aah:create:2013-41
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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