The Tails of the Return Distribution and Asset Prices
Benjamin M. Blau
Utah State University - Huntsman School of Business
Ryan J. Whitby
Utah State University
November 13, 2015
This study examines how the thickness and width of the tails of return distributions affect expected returns. Contrary to the idea that thicker tails represent risk that is directly related to expected returns, we find that kurtosis is negatively related to expected returns. These results hold in a number of multifactor models and Fama-MacBeth (1973) regressions that include common controls. We find stronger evidence that the width of the return distribution has a return premium that is substantially more negative than kurtosis.
Number of Pages in PDF File: 31
Keywords: Kurtosis, Leptokurtic Risk
Date posted: May 17, 2013 ; Last revised: November 14, 2015
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