Can risk-neutral skewness and kurtosis subsume the information content of historical jumps?

Ging-Ginq Pan, Yung-Ming Shiu and Tu-Cheng Wu

Journal of Financial Markets, 2022, vol. 57, issue C

Abstract: We examine the relation between jump variations and risk-neutral moments in volatility forecasting. We propose a method that involves no extrapolation in computing the risk-neutral moments of Bakshi et al. (2003) and document that risk-neutral skewness and kurtosis subsume the information content of historical jumps. While historical jumps have significant explanatory power for future volatility and such power is actually not weakened by the inclusion of risk-neutral volatility in models, their predictability does disappear when risk-neutral skewness and kurtosis are included.

Keywords: Volatility forecasting; Risk-neutral moments; Jumps (search for similar items in EconPapers)
JEL-codes: C13 G17 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1386418120300835
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:57:y:2022:i:c:s1386418120300835

DOI: 10.1016/j.finmar.2020.100614

Access Statistics for this article

Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

More articles in Journal of Financial Markets from Elsevier
Bibliographic data for series maintained by Catherine Liu ().