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Asset prices and “the devil(s) you know”

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  • Hollstein, Fabian
  • Nguyen, Duc Binh Benno
  • Prokopczuk, Marcel

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.

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  • Hollstein, Fabian & Nguyen, Duc Binh Benno & Prokopczuk, Marcel, 2019. "Asset prices and “the devil(s) you know”," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 20-35.
    • Handle: RePEc:eee:jbfina:v:105:y:2019:i:c:p:20-35
    DOI: 10.1016/j.jbankfin.2019.04.003
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    More about this item

    Keywords

    Persistence; Stock return distribution; Option-implied central moments;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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