Risks of heterogeneously persistent higher moments

Abstract

Using intraday data for the cross-section of individual stocks, we show that both transitory and persistent fluctuations in realized market and average idiosyncratic volatility, skewness and kurtosis are differentially priced in the cross-section of asset returns, implying a heterogeneous persistence structure of different sources of higher moment risks. In particular, we find that both idiosyncratic transitory shocks to volatility and idiosyncratic persistent shocks to skewness share strong commonalities that are relevant to investors.