On the surprising explanatory power of higher realized moments in practice

Keren SHEN, Jianfeng YAO, Wai Keung LI

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Realized moments of higher order computed from intraday returns have been introduced in recent years. The literature indicates that realized skewness is an important factor in explaining future asset returns. However, the literature mainly focuses on the whole market, as well as the monthly or weekly scale. In this paper, we conduct an extensive empirical analysis to investigate the forecasting abilities of realized skewness and realized kurtosis towards an individual stock’s future return and variance in the daily scale. It is found that realized kurtosis possesses significant forecasting power for the stock’s future variance and in contrast with the existing literature, realized skewness is lack of explanatory power of future daily returns for individual stocks in the short term. Copyright © 2018 by International Press of Boston, Inc. All rights reserved.
Original languageEnglish
Pages (from-to)153-168
JournalStatistics and its Interface
Volume11
Issue number1
DOIs
Publication statusPublished - 2018

Fingerprint

Skewness
Kurtosis
Moment
Forecasting
Empirical Analysis
Higher Order
Term

Citation

Shen, K., Yao, J., & Li, W. K. (2018). On the surprising explanatory power of higher realized moments in practice. Statistics and Its Interface, 11(1), 153-168. doi: 10.4310/SII.2018.v11.n1.a13

Keywords

  • High-frequency
  • Realized variance
  • Realized kurtosis
  • Linear regression
  • Trading volume