City Research Online

Abstract

Higher moments of long-horizon returns are important for asset pricing but are hard to measure accurately using standard techniques. We provide theory showing that short-horizon (e.g. daily) returns can be used to construct precise estimates of long- horizon (e.g. annual) moments without making strong assumptions about the data generating process. Skewness comprises two components: skewness of short- horizon returns and a leverage effect, i.e. covariance between variance and lagged returns. We provide similar results for kurtosis. An application to US stock-index returns shows that skew is large and negative and attenuates only slowly as one moves from monthly to multi-year horizons.

Publication Type:	Article
Additional Information:	This is a pre-copyedited, author-produced version of an article published in The Review of Financial Studies following peer review. The version of record Neuberger, A. and Payne, R. G. (2020). The Skewness of the Stock Market at Long Horizons. The Review of Financial Studies is to be available online at:10.1093/rfs/hhaa048
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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