Low risk anomalies?
- This paper shows theoretically and empirically that beta- and volatility-based low risk anomalies are driven by return skewness. The empirical patterns concisely match the predictions of our model which generates skewness of stock returns via default risk. With increasing downside risk, the standard capital asset 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.
Author: | Paul SchneiderORCiDGND, Christian WagnerORCiDGND, Josef ZechnerORCiDGND |
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URN: | urn:nbn:de:hebis:30:3-418697 |
URL: | https://ssrn.com/abstract=2858933 |
Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 550 |
Series (Serial Number): | CFS working paper series (550) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2016 |
Year of first Publication: | 2016 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2016/11/01 |
Tag: | credit risk; equity options; low risk anomaly; risk premia; skewness |
Issue: | February 2016 |
Page Number: | 71 |
HeBIS-PPN: | 396717578 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |