Intraday Residual Higher Moments as Equity Return Factors
Summary
This research summary examines whether intraday stock price behavior predicts future returns. It uses five-minute data and calculates volatility, skewness, and kurtosis from returns residualized with a Fama-French regression to reduce market and style influences. Each measure is averaged over 20 days to form a monthly factor. The study evaluates the signals using Rank IC series and portfolio grouping results, reporting that lower idiosyncratic volatility, skewness, and kurtosis are associated with higher expected returns.
Among the measures, residual skewness is described as having the strongest and most stable excess return performance. The summary gives its monthly Rank IC mean, IC_IR, top-portfolio excess return, and long-short maximum drawdown. It also reports an information half-life of about two weeks, implying that signal decay may warrant more frequent rebalancing or a different rebalance method. Factor overlap matters: idiosyncratic volatility’s excess return is attributed to specific risk, while kurtosis adds little after controlling for skewness. Results rely on historical data and may weaken if market styles change.
Key ideas
- The study forms intraday volatility, skewness, and kurtosis factors from Fama-French residual returns.
- It aggregates five-minute observations into 20-day measures and evaluates them with Rank IC and portfolio sorts.
- Lower values for all three measures are associated with higher expected future stock returns in the reported analysis.
- Residual skewness is reported as the strongest and most stable of the factors, with information decaying over roughly two weeks.
- Kurtosis overlaps substantially with skewness, while the volatility result is explained by specific risk.
- The findings are historical and may not persist if market styles change.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.