Low Risk Anomalies?

Paul Schneider, Christian Wagner, Josef Zechner

Research output: Contribution to conferencePaperResearchpeer-review


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 languageEnglish
Publication date2017
Number of pages72
Publication statusPublished - 2017
EventThe 77th Annual Meeting of American Finance Association. AFA 2017 - Sheraton Grand Chicago, Chicago, United States
Duration: 6 Jan 20178 Jan 2017
Conference number: 77


ConferenceThe 77th Annual Meeting of American Finance Association. AFA 2017
LocationSheraton Grand Chicago
Country/TerritoryUnited States
Internet address


  • Low risk anomaly
  • Skewness
  • Risk premia
  • Equity options

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