Can Tail Risk Explain Size, Book‐To‐Market, Momentum, and Idiosyncratic Volatility Anomalies?
36 Pages Posted: 27 May 2020
Date Written: October/November 2019
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: anomalies, idiosyncratic volatility, momentum, size, tail risk, value
JEL Classification: C4, G11, G12
Suggested Citation: Suggested Citation