On the surprising explanatory power of higher realized moments in practice

Shen, Keren; Yao, Jianfeng; Li, Wai Keung

doi:10.4310/sii.2018.v11.n1.a13

Cited by 9 publications

(6 citation statements)

References 15 publications

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“…In addition, RV w,t is the average RV from day t − 5 to day t − 1, while RV m,t denotes the average RV from day t − 22 to day t − 1. In this regard, it must be pointed out that we use the classical estimator of RV , i.e., the 3 Studies like Harvey and Siddique (2000), Ang et al (2006), Kelly and Jiang (2014), Amaya et al (2015), Shen et al (2018), andNeuberger andPayne (2020) show that realized skewness and realized kurtosis could predict aggregate and cross-sectional stock market returns. square root of the sum of squared intraday returns (Andersen and Bollerslev, 1998), expressed as…”

Section: Methodology and Higher-momentsmentioning

confidence: 99%

Forecasting realized volatility of international REITs: The role of realized skewness and realized kurtosis

Bonato

Çepni

Gupta

et al. 2021

Journal of Forecasting

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We use an international dataset on 5-minutes interval intraday data covering nine leading markets and regions to construct measures of realized volatility, realized jumps, realized skewness, and realized kurtosis of returns of international Real Estate Investment Trusts (REITs) over the daily period of September, 2008 to August, 2020. We study out-of-sample the predictive value of realized skewness and realized kurtosis for realized volatility over and above realized jumps, where we also differentiate between measures of "good" realized volatility and "bad" realized volatility. We find that realized skewness and realized kurtosis significantly improve forecasting performance at a daily, weekly, and monthly forecast horizon, and that their contribution to forecasting performance outweighs in terms of significance the contribution of realized jumps. Our results have important implications for investors and policymakers.

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Section: Methodology and Higher-momentsmentioning

confidence: 99%

Forecasting realized volatility of international REITs: The role of realized skewness and realized kurtosis

Bonato

Çepni

Gupta

et al. 2021

Journal of Forecasting

View full text Add to dashboard Cite

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“…Liu et al (2014) present a noise-robust high-frequency estimator of realised skewness, confirm its predictive power with respect to the 1-month US stock returns, and link it to the time-variability of the market risk premium. Shen et al (2018), on the other hand, do not find a statistically significant effect of realised skewness on 1day returns of individual stocks.…”

Section: Introductionmentioning

confidence: 56%

Forecasting Cross-Section of Stock Returns with Realised Moments

Fičura¹

2019

EFAJ

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The study tests whether realised moments of stock returns (mean, variance, skewness and kurtosis) computed from daily returns over the last month, quarter and year can predict the 1-month cross-sectional stock returns of 40 US-traded liquid stocks in the period 1986-2019. The performed univariate regression analysis confirmed a statistically significant positive effect between all the realised moments, computed over the last quarter and year, and the future 1-month crosssectional stock returns, while the 1-month realised moments proved to be mostly insignificant. Multivariate analysis, performed with Elastic Net Regression, has confirmed that investment strategies utilising information from realised moments were able to significantly outperform a random investment in the out-sample period 2004-2019.

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“…A competing hypothesis might be interesting when looking at a particular realized moment. For example, regarding realized kurtosis, Chen et al (2019) and Shen et al (2016) provide an alternative explanation or different results. I recommend an investigation of such competing hypothesis in future work.…”

Section: Essaymentioning

confidence: 99%

“…Chen et al (2019) andShen et al (2016) have different results on kurtosis from mine Chen et al (2019). and my study use different datasets.…”

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confidence: 90%

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Three essays on financial markets and news announcements

Wang¹

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This thesis focuses on the relation between financial markets and news announcements, comprising three empirical essays. The first essay (Chapter 2) investigates the predictability of realized moments on the cross-section of stock returns around earnings announcements. I construct realized measures (variance, skewness, kurtosis, and relative jump) using high-frequency intraday stock prices. My results show that realized variance, skewness, and relative jumps strongly predict stock returns around earnings announcements, but realized kurtosis does not. These findings are robust to various event windows, after controlling for firm characteristics, and to a range of additional tests. I further show that the predictability of realized measures is not affected by unexpected earnings. The findings also suggest that pre-announcement realized measures absorb part of the information contained in unexpected earnings. The second essay (Chapter 3) examines the stock market reaction to macroeconomic news announcements under different market conditions. I employ several jump/tail risk measures as proxies for extreme economic conditions. I focus on the jump and tail index (JTIX), which is constructed from the out-of-the-money call and put options on the S&P 500 index and is closely associated with the financial market and economic conditions. My results provide supportive evidence that the stock market responds more strongly to bad news than to good news, and this asymmetry effect becomes stronger with increasing JTIX (i.e., in periods of distress). Moreover, my results support the hypothesis that proposes the no-news-is-good-news effect. The third essay (Chapter 4) examines the information content of options prior to recommendation changes. Specifically, I construct the model-free implied variance and decompose it into upside (good) and downside (bad) variances. I show that the pre-event good (bad) implied variance contains distinctive information on stock returns, i.e., good (bad) implied variance is positively (negatively) related to post-recommendation stock returns. This relation extends over several days after recommendation changes and is robust after controlling for well-known firm characteristics and higher-order (i.e., third and fourth) implied moments. The ordered probit model shows that my findings are more consistent with the analyst tipping hypothesis. Declaration by author This thesis is composed of my original work, and contains no material previously published or written by another person except where due reference has been made in the text. I have clearly stated the contribution by others to jointly-authored works that I have included in my thesis. I have clearly stated the contribution of others to my thesis as a whole, including statistical assistance, survey design, data analysis, significant technical procedures, professional editorial advice, financial support and any other original research work used or reported in my thesis. The content of my thesis is the result of work I have carried out since the comm...

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On the surprising explanatory power of higher realized moments in practice

Cited by 9 publications

References 15 publications

Forecasting realized volatility of international REITs: The role of realized skewness and realized kurtosis

Forecasting realized volatility of international REITs: The role of realized skewness and realized kurtosis

Forecasting Cross-Section of Stock Returns with Realised Moments

Three essays on financial markets and news announcements

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