Does Realized Skewness Predict the Cross-Section of Equity Returns?

Abstract

We use intraday data to compute weekly realized moments for equity returns and study their time-series and cross-sectional properties. Buying stocks in the lowest realized skewness decile and selling stocks in the highest realized skewness decile generates an average return of 19 basis points the following week with a t-statistic of 3.70. This result is robust across a wide variety of implementations and is not captured by the Fama-French and Carhart factors. The relation between realized kurtosis and next week׳s stock returns is positive but not always significant. We do not find a strong relation between realized volatility and next week׳s stock returns.