Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147147
Authors: 
Schneider, Paul
Wagner, Christian
Zechner, Josef
Year of Publication: 
2016
Series/Report no.: 
CFS Working Paper Series 550
Abstract: 
This paper shows theoretically and empirically that beta- and volatility-based low risk anomalies are driven by return skewness. The empirical patterns con- cisely match the predictions of our model which generates skewness of stock returns via default risk. With increasing downside risk, the standard capital as- set pricing model increasingly overestimates required equity returns relative to firms' true (skew-adjusted) market risk. Empirically, the profitability of betting against beta/volatility increases with firms' downside risk. Our results suggest that the returns to betting against beta/volatility do not necessarily pose asset pricing puzzles but rather that such strategies collect premia that compensate for skew risk.
Subjects: 
low risk anomaly
skewness
credit risk
risk premia
equity options
Document Type: 
Working Paper

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