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Realized higher moments and trading activity

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  • Shu-Fang Yuan

    (Nanhua University)

Abstract

This study investigates the informativeness of realized higher moments of stock index returns, namely, realized skewness and kurtosis, in explaining trading activity in the futures market to investigate whether information flows from price risk to trading activity. By analyzing high-frequency data covering a twelve-year period, we discover that futures trading activity can be attributed to high-moment market risks, as observed in the significant explanatory power of realized high moments even after controlling for other risk factors. The results are robust to the use of various adjusted measures of high-moment risk, their subcomponents, various measures of trading activity, and data attributes. This study suggests that realized high moments are a market risk and cannot be combined with volatility risk and other risk measures. Most importantly, this study finds that there exists a flow of market information from price risk to trading activity.

Suggested Citation

  • Shu-Fang Yuan, 2024. "Realized higher moments and trading activity," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 971-1005, April.
    • Handle: RePEc:kap:rqfnac:v:62:y:2024:i:3:d:10.1007_s11156-023-01227-3
    DOI: 10.1007/s11156-023-01227-3
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    More about this item

    Keywords

    Realized higher moments; Realized skewness; Realized kurtosis; Volatility risk; Trading activity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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