Asset Prices and 'The Devil(s) You Know'
69 Pages Posted: 24 May 2019 Last revised: 18 Sep 2019
Date Written: April 29, 2019
In this paper, we study the asset pricing implications of persistence in the risk-neutral return distribution's central moments. We detect a both economically and statistically significant premium of stocks with low over stocks with high such persistence. Annual value-weighted excess (risk-adjusted) returns are 4.38% (3.06%). These results cannot be explained by factors and characteristics documented in the previous literature. Furthermore, it is not the persistence of only one of the individual distributional moments but rather the joint persistence in all central moments of the risk-neutral distribution that is priced.
Keywords: persistence, stock return distribution, option-implied central moments, asset pricing
JEL Classification: G12, G11, G10
Suggested Citation: Suggested Citation