Low‐Risk Anomalies?

By Paul Schneider, Christian Wagner, Josef Zechner. Journal of Finance, 2020

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This paper shows that low risk anomalies in the CAPM 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 -volatility insignificant. We also show that the returns of beta- and volatility-sorted portfolios are largely driven by a single principal component, which is in turn largely explained by skewness.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/572d89babc2612425ec87b097d5355f193ab99ea