Risks of heterogeneously persistent higher moments

TL;DR

This paper investigates how different types of higher moment risks, such as volatility, skewness, and kurtosis, with varying persistence levels, are priced in stock returns using intraday data, revealing heterogeneous risk structures.

Contribution

It uncovers the heterogeneous persistence structure of higher moment risks and their differential pricing in asset returns, highlighting the importance of both transitory and persistent shocks.

Findings

Transitory and persistent fluctuations in higher moments are differentially priced.

Idiosyncratic shocks to volatility and skewness are relevant to investors.

Heterogeneous persistence structures influence asset return pricing.

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. Specifically, we find that idiosyncratic transitory shocks to volatility as well as idiosyncratic persistent shocks to skewness contain strong commonalities that are relevant to investors.