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Does Realized Skewness Predict the Cross-Section of Equity Returns?

Diego Amaya (), Peter Christoffersen, Kris Jacbos () and Aurelio Vasquez ()
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Diego Amaya: University of Quebec at Montreal (UQUAM), Postal: 320 Rue Sainte-Catherine Est, Montréal, QC H2X 1L7, Canada
Kris Jacbos: University of Houston, Postal: Houston, TX 77204-6021, United States
Aurelio Vasquez: Instituto Tecnológico Autónomo de México (ITAM), Postal: Rio Hondo No. 1, Col. Tizapan-San Angel, 01000, Mexico

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We use intraday data to compute weekly realized variance, skewness, and kurtosis for equity returns and study the realized moments? time-series and cross-sectional properties. We investigate if this week?'s realized moments are informative for the cross-section of next week'?s stock returns. We ?find a very strong negative relationship between realized skewness and next week?'s stock returns. A trading strategy that buys stocks in the lowest realized skewness decile and sells stocks in the highest realized skewness decile generates an average weekly return of 24 basis points with a t-statistic of 3.65. Our results on realized skewness are robust across a wide variety of implementations, sample periods, portfolio weightings, and firm characteristics, and are not captured by the Fama-French and Carhart factors. We ?find some evidence that the relationship between realized kurtosis and next week?'s stock returns is positive, but the evidence is not always robust and statistically significant. We do not find a strong relationship between realized volatility and next week?'s stock returns.

Keywords: Realized volatility; skewness; kurtosis; equity markets; cross-section of stock returns (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Pages: 48
Date: 2013
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-mst
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Citations: View citations in EconPapers (8)

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Journal Article: Does realized skewness predict the cross-section of equity returns? (2015) Downloads
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