Higher moments and the cross-sectional predictability of equity on an intermediate formation period

• Main Author: Almeida, José
• Publication Date: 2023
• Format: Master thesis
• Language: eng
• Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
• Download full: http://hdl.handle.net/10400.14/45184
• topic: Realized volatility; Realized skewness; Realized kurtosis; Cross-section of stock returns; Volatilidade; Assimetria; Curtose; Retornos de ações cruzados

I use daily data from all the Spanish listed companies from January 1990 to December 2021 to compute realized moments for 3 different time formation periods and study their cross-section properties. The realized volatility revealed a negative relation with returns, as buying the lowers realized volatility quintile and selling the ones in the highest generated a Sharpe-ratio of 0.72 for the full formation period, 0.77 for the intermediate formation period and 0.62 for the recent formation period with T-statistics of 4.02, 4.28 and 3.40 respectively. The relation between realized skewness and returns is positive or negative depending on the formation period in question revealing an inversion in the relation for longer formation windows. The relation between realized kurtosis and returns is negative but with low statistical significance.