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Low Risk Anomalies?

Author

Listed:
  • Paul Schneider

    (University of Lugano - Institute of Finance; Swiss Finance Institute)

  • Christian Wagner

    (WU Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF))

  • Josef Zechner

    (Vienna University of Economics and Business)

Abstract

This paper shows that low risk anomalies in the CAPM 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 -volatility insignificant. We also show that the returns of beta- and volatility-sorted portfolios are largely driven by a single principal component, which is in turn largely explained by skewness.

Suggested Citation

  • Paul Schneider & Christian Wagner & Josef Zechner, 2019. "Low Risk Anomalies?," Swiss Finance Institute Research Paper Series 19-50, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1950
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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