Low‐risk Anomalies?

Paul Schneider, Christian Wagner, Josef Zechner

    Research output: Contribution to journalJournal articlepeer-review

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    Abstract

    This paper shows that low‐risk anomalies in the capital asset pricing model and in traditional factor models arise when investors require compensation for coskewness risk. Empirically, we find that option‐implied ex ante skewness is strongly related to ex post residual coskewness, which allows us to construct coskewness factor‐mimicking portfolios. Controlling for skewness renders the alphas of betting‐against‐beta and betting‐against‐volatility insignificant. We also show that the returns of beta‐ and volatility‐sorted portfolios are driven largely by a single principal component, which in turn is explained largely by skewness.
    Original languageEnglish
    JournalThe Journal of Finance
    Volume75
    Issue number5
    Pages (from-to)2673-2718
    Number of pages46
    ISSN0022-1082
    DOIs
    Publication statusPublished - Oct 2020

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