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Low‐Risk Anomalies?

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  • PAUL SCHNEIDER
  • CHRISTIAN WAGNER
  • JOSEF ZECHNER

Abstract

This paper shows that low‐risk anomalies in the capital asset pricing model and in traditional factor models arise when investors require compensation for coskewness risk. Empirically, we find that option‐implied ex ante skewness is strongly related to ex post residual coskewness, which allows us to construct coskewness factor‐mimicking portfolios. Controlling for skewness renders the alphas of betting‐against‐beta and betting‐against‐volatility insignificant. We also show that the returns of beta‐ and volatility‐sorted portfolios are driven largely by a single principal component, which in turn is explained largely by skewness.

Suggested Citation

  • Paul Schneider & Christian Wagner & Josef Zechner, 2020. "Low‐Risk Anomalies?," Journal of Finance, American Finance Association, vol. 75(5), pages 2673-2718, October.
    • Handle: RePEc:bla:jfinan:v:75:y:2020:i:5:p:2673-2718
    DOI: 10.1111/jofi.12910
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