Can Tail Risk Explain Size, Book-to-Market, Momentum, and Idiosyncratic Volatility Anomalies?

Journal of Business Finance and Accounting, Forthcoming

66 Pages Posted: 2 Sep 2016 Last revised: 9 Aug 2019

See all articles by Sofiane Aboura

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Yakup Eser Arısoy

NEOMA Business School

Date Written: February 28, 2019

Abstract

We examine the impact of tail risk on the return dynamics of size, book-to-market ratio, momentum, and idiosyncratic volatility sorted portfolios. Our time-series analyses document significant portfolio return exposures to aggregate tail risk. In particular, portfolios that contain small, value, high idiosyncratic volatility, and low momentum stocks exhibit negative and statistically significant tail risk betas. Our cross-sectional analyses at the individual stock level suggest that tail risk helps in explaining the four pricing anomalies, particularly size and idiosyncratic volatility anomalies.

Keywords: Tail risk, Size, Value, Momentum, Idiosyncratic volatility, Anomalies

JEL Classification: C4, G11, G12

Suggested Citation

Aboura, Sofiane and Arısoy, Yakup Eser, Can Tail Risk Explain Size, Book-to-Market, Momentum, and Idiosyncratic Volatility Anomalies? (February 28, 2019). Journal of Business Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2832893 or http://dx.doi.org/10.2139/ssrn.2832893

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

Yakup Eser Arısoy (Contact Author)

NEOMA Business School ( email )

59 rue Pierre Taittinger
Reims, 51100
France

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