Empirical Study On Quantitative Strategy Based On Realized Higher-order Moment

As an emerging financial market,China stock market can be easily affected by multiple factors.The return of individual stocks often presents an abnormal distribution.Therefore,making investment decisions only based on the traditional mean-variance analysis framework may affect the effectiveness of investment strategies.It is necessary to further study the higher-order moment of the stock return.With the wide application of high-frequency data,it is possible to obtain the realized higher-order moment.The application of the realized higher-order moment is of great significance for describing the distribution characteristics of the individual stock return,financial asset risk management and asset allocation.Firstly,we refer to the method of Amaya et al.(2015)and use the highfrequency data of 3526 individual stocks from January 5,2015 to December 31,2020 to calculate the realized higher-order moment of individual stocks.By constructing the long-short portfolio,we can easily observe the performance of the strategy.Meanwhile,we obtain the intercept terms of the Carhart four-factor and the Fama-French five-factor model by regression of the portfolio return to the factors.By observing the significance of the intercept term,we can verify whether the effect of realized higher-order moments on portfolio return is independent of the Carhart four-factor or the Fama-French five-factor.Finally,to exclude the effect of other variables,we apply multiple factors to Fama-Macbeth regression for empirical analysis and use Information Coefficient(IC)weighted scoring model to construct a multi-factor quantitative strategy.The empirical analysis results show that,under the condition of single factor ranking and grouping,the portfolio return has a robust negative correlation with the realized kurtosis,and the bigger the realized kurtosis,the smaller the portfolio return.With the rise of the realized kurtosis,the intercept terms of the Carhart four-factor and Fama-French five-factor model also show an obvious trend of monotonous decrease,and the intercept terms of the long-short portfolio are significant,indicating that the realized kurtosis of the stock return can become a new pricing factor which is independent of the Carhart four-factor and Fama-French five-factor.The result is still robust when other factors are considered.In addition,we also test the relationship between the realized volatility,realized skewness and the portfolio return.The results show that although the correlation between the realized volatility and the portfolio return is negative,the correlation is not robust.Finally,the backtest results of the multi-factor quantitative stock selection strategy show that the strategy based on the realized higher-order moment has a significant excess return compared with the benchmark strategies.