Unlocking Stock Market Predictability: Higher Moment Risk Premiums Lead the Way
The study looked at how different types of risks in the stock market can predict future stock returns. They found that certain types of risks, like second moment risk, can predict short-term returns, while third and fourth moment risks can predict medium-term returns. When these different risks are combined, they can better predict stock returns over various timeframes. This information is important for making decisions about where to invest money.