Wavelet Timescales and Conditional Relationship between Higher-Order Systematic Co-Moments and Portfolio Returns: Evidence in Australian Data

Monash University Econometrics and Business Statistics Working Paper No. WP 16-04

30 Pages Posted: 30 Sep 2004

See all articles by Don U. A. Galagedera

Don U. A. Galagedera

Monash University - Department of Econometrics and Business Statistics

Elizabeth Ann Maharaj

Monash University

Date Written: August 2004

Abstract

This paper investigates association between portfolio returns and higher-order systematic co-moments at different timescales obtained through wavelet multi-scaling - a technique that decomposes a given return series into different timescales enabling investigation at different return intervals. For some portfolios, the relative risk positions indicated by systematic co-moments at higher timescales is different from those revealed in raw returns. A strong positive (negative) linear association between beta and co-kurtosis and portfolio return in the up (down) market is observed in raw returns and at different timescales. The beta risk is priced in the up and down markets and the co-kurtosis is not. Co-skewness does not appear to be linearly associated with portfolio returns even after the up and down market split and is not priced.

Keywords: Wavelet multi-scaling, higher-order systematic co-moments, asset pricing

JEL Classification: G11, G12

Suggested Citation

Galagedera, Don (Tissa) U. A. and Maharaj, Elizabeth Ann, Wavelet Timescales and Conditional Relationship between Higher-Order Systematic Co-Moments and Portfolio Returns: Evidence in Australian Data (August 2004). Monash University Econometrics and Business Statistics Working Paper No. WP 16-04, Available at SSRN: https://ssrn.com/abstract=597313 or http://dx.doi.org/10.2139/ssrn.597313

Don (Tissa) U. A. Galagedera (Contact Author)

Monash University - Department of Econometrics and Business Statistics ( email )

900 Dandenong Road
Caulfield East, VIC 3145
Australia
+61 3 9903 1578 (Phone)
+61 3 9903 2007 (Fax)

Elizabeth Ann Maharaj

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia