Working Papers 2004 – Abstracts
16/2004
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Wavelet timescales and conditional relationship between higher-order
systematic co-moments and portfolio returns: evidence in Australian data
Don U.A. Galagedera and Elizabeth A. Maharaj
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
