Low Risk Anomalies?

73 Pages Posted: 13 Apr 2015 Last revised: 8 Nov 2017

Paul Schneider

University of Lugano - Institute of Finance; Swiss Finance Institute

Christian Wagner

Copenhagen Business School

Josef Zechner

Vienna University of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 28, 2017

Abstract

This paper shows that stocks' CAPM alphas are negatively related to CAPM betas if investors demand compensation for negative skewness. Thus, high (low) beta stocks appear to underperform (outperform). This apparent anomaly merely reflects compensation for residual coskewness ignored by the CAPM. Empirically, we find that option-implied ex-ante skewness is strongly related to ex-post residual coskewness and alphas. Beta- and volatility-based low risk anomalies are largely driven by a single principal component, which is in turn largely explained by skewness. Controlling for skewness renders the alphas of betting-against-beta and -volatility insignificant.

Keywords: Low risk anomaly, skewness, risk premia, equity options

JEL Classification: G12

Suggested Citation

Schneider, Paul and Wagner, Christian and Zechner, Josef, Low Risk Anomalies? (October 28, 2017). Available at SSRN: https://ssrn.com/abstract=2593519 or http://dx.doi.org/10.2139/ssrn.2593519

Paul Georg Schneider

University of Lugano - Institute of Finance ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Christian Wagner (Contact Author)

Copenhagen Business School ( email )

Department of Finance
Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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