Low Risk Anomalies?

Paul Schneider; Christian Wagner; Josef Zechner

doi:10.2139/ssrn.2593519

Low Risk Anomalies?

Paul Schneider, Christian Wagner, Josef Zechner

Department of Finance

Research output: Contribution to conference › Paper › Research › peer-review

Abstract

This paper shows that stocks' CAPM alphas are negatively related to CAPM betas if investors demand compensation for negative skewness. Thus, high (low) beta stocks appear to underperform (outperform). This apparent anomaly merely reflects compensation for residual coskewness ignored by the CAPM. Empirically, we find that option-implied ex-ante skewness is strongly related to ex-post residual coskewness and alphas. Beta- and volatility-based low risk anomalies are largely driven by a single principal component, which is in turn largely explained by skewness. Controlling for skewness renders the alphas of betting-against-beta and -volatility insignificant.

Original language	English
Publication date	2017
Number of pages	72
DOIs	https://doi.org/10.2139/ssrn.2593519
Publication status	Published - 2017
Event	The 77th Annual Meeting of American Finance Association. AFA 2017 - Sheraton Grand Chicago, Chicago, United States Duration: 6 Jan 2017 → 8 Jan 2017 Conference number: 77 http://www.afajof.org/details/page/8672741/Paper-Submission-2017.html

Conference

Conference	The 77th Annual Meeting of American Finance Association. AFA 2017
Number	77
Location	Sheraton Grand Chicago
Country	United States
City	Chicago
Period	06/01/2017 → 08/01/2017
Internet address	http://www.afajof.org/details/page/8672741/Paper-Submission-2017.html

Keywords

Low risk anomaly
Skewness
Risk premia
Equity options

Cite this

Schneider, P., Wagner, C., & Zechner, J. (2017). Low Risk Anomalies?. Paper presented at The 77th Annual Meeting of American Finance Association. AFA 2017, Chicago, United States. https://doi.org/10.2139/ssrn.2593519

Schneider, Paul ; Wagner, Christian ; Zechner, Josef. / Low Risk Anomalies?. Paper presented at The 77th Annual Meeting of American Finance Association. AFA 2017, Chicago, United States.72 p.

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title = "Low Risk Anomalies?",

abstract = "This paper shows that stocks' CAPM alphas are negatively related to CAPM betas if investors demand compensation for negative skewness. Thus, high (low) beta stocks appear to underperform (outperform). This apparent anomaly merely reflects compensation for residual coskewness ignored by the CAPM. Empirically, we find that option-implied ex-ante skewness is strongly related to ex-post residual coskewness and alphas. Beta- and volatility-based low risk anomalies are largely driven by a single principal component, which is in turn largely explained by skewness. Controlling for skewness renders the alphas of betting-against-beta and -volatility insignificant.",

keywords = "Low risk anomaly, Skewness, Risk premia, Equity options, Low risk anomaly, Skewness, Risk premia, Equity options",

author = "Paul Schneider and Christian Wagner and Josef Zechner",

year = "2017",

doi = "10.2139/ssrn.2593519",

language = "English",

note = "null ; Conference date: 06-01-2017 Through 08-01-2017",

url = "http://www.afajof.org/details/page/8672741/Paper-Submission-2017.html",

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Schneider, P, Wagner, C & Zechner, J 2017, 'Low Risk Anomalies?' Paper presented at, Chicago, United States, 06/01/2017 - 08/01/2017, . https://doi.org/10.2139/ssrn.2593519

Low Risk Anomalies? / Schneider, Paul; Wagner, Christian; Zechner, Josef.

2017. Paper presented at The 77th Annual Meeting of American Finance Association. AFA 2017, Chicago, United States.