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Wavelet timescales and conditional relationship between higher-order systematic co-moments and portfolio returns: evidence in Australian data

  • Don U.A. Galagedera

    ()

  • Elizabeth A. Maharaj

    ()

This paper investigates association between portfolio returns and higher-order systematic co-moments at different timescales obtained through wavelet multi-scaling- a technique that decomposes a given return series into different timescales enabling investigation at different return intervals. For some portfolios, the relative risk positions indicated by systematic co-moments at higher timescales is different from those revealed in raw returns. A strong positive (negative) linear association between beta and co-kurtosis and portfolio return in the up (down) market is observed in raw returns and at different timescales. The beta risk is priced in the up and down markets and the co-kurtosis is not. Co-skewness does not appear to be linearly associated with portfolio returns even after the up and down market split and is not priced.

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File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2004/wp16-04.pdf
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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 16/04.

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Length: 30 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:msh:ebswps:2004-16
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Web page: http://www.buseco.monash.edu.au/depts/ebs/
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  1. Stephen Satchell & Soosung Hwang, 1999. "Modelling Emerging Market Risk Premia Using Higher Moments," Working Papers wp99-17, Warwick Business School, Finance Group.
  2. Pettengill, Glenn N. & Sundaram, Sridhar & Mathur, Ike, 1995. "The Conditional Relation between Beta and Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 101-116, March.
  3. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
  4. Handa, Puneet & Kothari, S. P. & Wasley, Charles, 1989. "The relation between the return interval and betas : Implications for the size effect," Journal of Financial Economics, Elsevier, vol. 23(1), pages 79-100, June.
  5. Brailsford, Timothy J. & Faff, Robert W., 1997. "Testing the conditional CAPM and the effect of intervaling: A note," Pacific-Basin Finance Journal, Elsevier, vol. 5(5), pages 527-537, December.
  6. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," The Journal of Business, University of Chicago Press, vol. 45(3), pages 444-55, July.
  7. Gordon, Myron J & Paradis, G E & Rorke, C H, 1972. "Experimental Evidence on Alternative Portfolio Decision Rules," American Economic Review, American Economic Association, vol. 62(1), pages 107-18, March.
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