Relative Signed Jump Variation as a Stock Return Predictor

Summary

This research summary discusses how the balance between upward and downward stock volatility may help explain differences in future returns across stocks. It defines Relative Signed Jump Variation (RSJ) by taking the difference between upside and downside volatility and dividing by their sum. The measure is intended to distinguish favorable from unfavorable volatility, extending analysis beyond a single overall volatility estimate. The summary compares RSJ with realized skewness, realized kurtosis, and weekly return reversal using portfolio sorts and regression analysis.

The reported findings say RSJ’s return spreads remain statistically and economically meaningful after adjustment for Fama–French–Carhart risk factors and controls for other company characteristics and expected-return predictors. The result is also described as robust across equal-weighted portfolios, two-variable sorts, and Fama–MacBeth regressions. However, this is a synopsis of historical research rather than a full account of its data, construction choices, or implementation. It provides no effect sizes or details sufficient to reproduce the tests, and its authors caution that historical results are not investment advice.

Key ideas

• RSJ normalizes the difference between upside and downside volatility by their sum.
• The measure is proposed as a way to distinguish favorable from unfavorable stock volatility.
• The reported comparisons include realized skewness, realized kurtosis, and weekly return reversal.
• The summary reports persistent return spreads after risk-factor adjustment and additional controls.
• The evidence is historical, and the synopsis omits details needed to reproduce the analysis.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.