Low risk anomalies?

Arbeitspapier

This paper shows theoretically and empirically that beta- and volatility-based low risk anomalies are driven by return skewness. The empirical patterns con- cisely match the predictions of our model which generates skewness of stock returns via default risk. With increasing downside risk, the standard capital as- set pricing model increasingly overestimates required equity returns relative to firms' true (skew-adjusted) market risk. Empirically, the profitability of betting against beta/volatility increases with firms' downside risk. Our results suggest that the returns to betting against beta/volatility do not necessarily pose asset pricing puzzles but rather that such strategies collect premia that compensate for skew risk.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper Series ; No. 550

Classification and Topics

• Classification: Wirtschaft
• Subject: low risk anomaly ; skewness ; credit risk ; risk premia ; equity options

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schneider, Paul ; Wagner, Christian ; Zechner, Josef
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/147147
• URN: urn:nbn:de:hebis:30:3-418697
• Last update: 10.03.2025, 11:44 AM CET