Explanatory power of realised moments

Seema Rehman, Saqib Sharif and Wali Ullah

Afro-Asian Journal of Finance and Accounting, 2024, vol. 14, issue 1, 22-42

Abstract: This study decomposes realised moments into high and low components and examines if the high minus low realised moment factors are helpful in explaining future stock returns. Realised moment factors are incorporated as extensions to basic asset pricing models. Evidence from this paper suggests the role of realised moments in enhancing the step wise model development. Such as there is risk premium at Pakistan Stock Exchange (PSX) for investing in stocks having volatile, more skewed return distributions with excess kurtosis. This study may help investors and fund managers to employ best strategies to gain maximum return on their investment. By including third and fourth moments within coherent framework acknowledges risk from asymmetries and fat tails and helps investors in constructing smart portfolios to earn higher returns. To the best of authors' knowledge, this is the first study to analyse the role of realised moments in explaining stock returns, using high frequency data in the emerging stock market of Pakistan.

Keywords: equity returns; emerging market; intraday data; realised volatility; skewness; kurtosis. (search for similar items in EconPapers)
Date: 2024
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