Realized higher moments and trading activity

Shu-Fang Yuan ()
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Shu-Fang Yuan: Nanhua University

Review of Quantitative Finance and Accounting, 2024, vol. 62, issue 3, No 5, 1005 pages

Abstract: Abstract This study investigates the informativeness of realized higher moments of stock index returns, namely, realized skewness and kurtosis, in explaining trading activity in the futures market to investigate whether information flows from price risk to trading activity. By analyzing high-frequency data covering a twelve-year period, we discover that futures trading activity can be attributed to high-moment market risks, as observed in the significant explanatory power of realized high moments even after controlling for other risk factors. The results are robust to the use of various adjusted measures of high-moment risk, their subcomponents, various measures of trading activity, and data attributes. This study suggests that realized high moments are a market risk and cannot be combined with volatility risk and other risk measures. Most importantly, this study finds that there exists a flow of market information from price risk to trading activity.

Keywords: Realized higher moments; Realized skewness; Realized kurtosis; Volatility risk; Trading activity (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11156-023-01227-3

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