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Relative Signed Jump and Future Stock Returns

Author

Listed:
  • Seema REHMAN

    (Department of Management Sciences, Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology (SZABIST), 90 and 100 Clifton, Karachi-75600, Pakistan.)

  • Saqib SHARIF

    (Department of Finance, Institute of Business Administration (IBA), University Road, Karachi-75270, Pakistan.)

  • Wali ULLAH

    (Department of Economics, Institute of Business Administration (IBA), University Road, Karachi-75270, Pakistan.)

Abstract

Due to the importance of expected return on investment documented in financial literature, studies have developed and examined numerous methods and techniques and assessed their predictability power. This research examines if realized variation measures of individual firms contain information for future stock returns using trading strategy that takes long position for portfolio of stocks having high realized variation measures and takes short position for portfolio of stocks having low realized variation measures. Relying on recent advancements in asset pricing, intraday stock price increments are decomposed into their positive and negative constituents and their summed squares are categorized as good and bad volatilities, respectively. On the basis of the findings, it is evidenced that relative signed jump measure (RSJ) acquired by taking the difference of good and bad volatilities, scaled by total daily volatility, has positive risk premium in the cross section of stock returns in the emerging stock market of Pakistan. Results for realized kurtosis (RKT) are also positive and significant for predicting next week’s cross sectional stock return. Furthermore, the predictive power of realized volatility (RVOL) and realized skewness (RSK) are analyzed, but no robust evidence is traced for these realized measures.

Suggested Citation

  • Seema REHMAN & Saqib SHARIF & Wali ULLAH, 2023. "Relative Signed Jump and Future Stock Returns," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 25-45, March.
    • Handle: RePEc:rjr:romjef:v::y:2023:i:1:p:25-45
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    More about this item

    Keywords

    cross-section of equity returns; emerging market; intraday data; realized skewness; relative signed jump;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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