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.

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Metadaten
Author:Paul Schneider, Christian Wagner, Josef Zechner
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:Universit├Ątsbibliothek 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:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht