Posts Tagged ‘curtosis

07
Aug
11

Paper: Curtosis y predicción de retornos

Do Realized Skewness and Kurtosis Predict the Cross-Section of Equity Returns?

Abstract: 
Yes. We use intraday data to compute weekly realized variance, skewness and kurtosis for individual equities and assess whether this week’s realized moments predict next week’s stock returns in the cross-section. We sort stocks each week according to their past realized moments, form decile portfolios and analyze subsequent weekly returns. We find a very strong negative relationship between realized skewness and next week’s stock returns, and a positive relationship between realized kurtosis and next week’s stock returns. We do not find a strong relationship between realized volatility and 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 43 basis points with a t-statistic of 8.91. A similar strategy that buys stocks with high realized kurtosis and sells stocks with low realized kurtosis produces a weekly return of 16 basis points with a t-statistic of 2.98. Our results are robust across sample periods, portfolio weightings, and proxies for firm characteristics, and they are not captured by the Fama-French and Carhart factors.

Link al Paper

28
Mar
11

Paper: Hedging dinamico, análisis empírico

An Empirical Analysis of Dynamic Multiscale Hedging using Wavelet Decomposition

Abstract

This paper investigates the hedging effectiveness of a dynamic moving window OLS hedging model, formed using wavelet decomposed time-series. The wavelet transform is applied to calculate the appropriate dynamic minimum-variance hedge ratio for various hedging horizons for a number of assets. The effectiveness of the dynamic multiscale hedging strategy is then tested, both in- and out-of-sample, using standard variance reduction and expanded to include a downside risk metric, the time horizon dependent Value-at-Risk. Measured using variance reduction, the effectiveness converges to one at longer scales, while a measure of VaR reduction indicates a portion of residual risk remains at all scales. Analysis of the hedge portfolio distributions indicate that this unhedged tail risk is related to excess portfolio kurtosis found at all scales.

Link al Paper




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