Wavelet timescales and conditional relationship between higher-order systematic co-moments and portfolio returns

Don Galagedera and Elizabeth Maharaj ()

Quantitative Finance, 2008, vol. 8, issue 2, 201-215

Abstract: This paper investigates the 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 timescales enabling investigation at different return intervals. In Australian industry portfolios, the relative risk positions indicated by systematic co-moments at some timescales are different from those revealed in daily returns. A strong positive (negative) linear association between beta and portfolio return and co-kurtosis and portfolio return in the up (down) market is observed in daily returns and at different timescales. The beta risk is priced in the up and down markets. Co-kurtosis is not priced when the beta is in the pricing model. Co-skewness appears to be priced at a relatively high timescale and this is observed only after the up and down separation of market returns.

Keywords: Wavelet multi-scaling; Higher-order systematic co-moments; Asset pricing; Conditional pricing models (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (20)

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DOI: 10.1080/14697680600989576

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