Articlebronze2012

Realized Skewness

214 citations0/0 files storedReview of Financial Studies

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Stochastic processes and financial applications

Abstract

The third moment of returns is important for asset pricing, but it is hard to measure precisely, particularly at long horizons. This paper proposes a definition of the realized third moment that is computed from high-frequency returns. It provides an unbiased estimate of the true third moment of long-horizon returns, doing for the third moment what realized variance does for the second moment. The methodology is used to demonstrate that the skewness of equity index returns, far from diminishing with horizon, actually increases with horizons up to a year, and its magnitude is economically important.

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References

1993A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options 2012The Econometrics of Financial Markets 1969Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case 1997The Econometrics of Financial Markets 2006The Cross‐Section of Volatility and Expected Returns 2003Modeling and Forecasting Realized Volatility 1988Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test 2000Conditional Skewness in Asset Pricing Tests

Cited by

2016Why Invest in Emerging Markets? The Role of Conditional Return Asymmetry 2019Average skewness matters 2018Option Prices in a Model with Stochastic Disaster Risk 2017A general framework for discretely sampled realized variance derivatives in stochastic volatility models with jumps 2013The Estimation of Leverage Effect With High-Frequency Data 2016Bond Variance Risk Premiums

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