Abstract

http://ssrn.com/abstract=2274295
 


 



Volatility vs. Tail Risk: Which One is Compensated in Equity Funds?


James X. Xiong


Ibbotson Associates, a Morningstar company

Thomas Idzorek


Ibbotson Associates - A Morningstar Company

Roger G. Ibbotson


Yale School of Management; Zebra Capital Management, LLC

May 30, 2013

Journal of Portfolio Management, Forthcoming

Abstract:     
Research that has led to what is known as the “low volatility anomaly” in cross-sectional stocks from a similar universe indicates that volatility is not compensated with a “volatility” premium. We find evidence of a risk premium, but it depends on the definition or measure of risk. “Tail risk” measures the probability of having significant losses and should be what investors care about the most. We investigated several risk measures, including volatility and tail risk, and found that volatility is not compensated but tail risk is compensated with higher expected return in both U.S. and non-U.S. equity funds.

Keywords: Volatility, Tail Risk, Equity funds

JEL Classification: G11, G12, G23

Accepted Paper Series


Not Available For Download

Date posted: June 5, 2013  

Suggested Citation

Xiong, James X. and Idzorek, Thomas and Ibbotson, Roger G., Volatility vs. Tail Risk: Which One is Compensated in Equity Funds? (May 30, 2013). Journal of Portfolio Management, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2274295

Contact Information

James X. Xiong (Contact Author)
Ibbotson Associates, a Morningstar company ( email )
22 West Washington Street
Chicago, IL 60602
United States
Thomas Idzorek
Ibbotson Associates - A Morningstar Company ( email )
225 North Michigan Avenue
Suite 700
Chicago, IL 60601
United States
312 696-6840 (Phone)
312 696-6701 (Fax)
HOME PAGE: http://www.ibbotson.com
Roger G. Ibbotson
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6021 (Phone)
203-432-6970 (Fax)
Zebra Capital Management, LLC ( email )
612 Wheelers Farms Road
Milford, CT 06461
United States
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