Low Risk Anomalies? Top Cited Article 2020-2021 in the Journal of Finance by Wiley

Publication: Scientific journalJournal articlepeer-review

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
Pages (from-to)2673 - 2718
JournalJournal of Finance
Volume75
Issue number5
DOIs
Publication statusPublished - 2020

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502009 Corporate finance

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