Asset Prices and 'The Devil(s) You Know'

69 Pages Posted: 24 May 2019 Last revised: 18 Sep 2019

See all articles by Fabian Hollstein

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management

Duc Binh Benno Nguyen

Leibniz Universität Hannover - Faculty of Economics and Management

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: April 29, 2019

Abstract

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

Hollstein, Fabian and Nguyen, Duc Binh Benno and Prokopczuk, Marcel, Asset Prices and 'The Devil(s) You Know' (April 29, 2019). Journal of Banking and Finance (2019), Vol. 105, pp. 20–35. Available at SSRN: https://ssrn.com/abstract=3379780

Fabian Hollstein (Contact Author)

Leibniz University Hannover - School of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Duc Binh Benno Nguyen

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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