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Is there a risk premium? Evidence from thirteen measures

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  • Fracasso, Laís Martins
  • Müller, Fernanda Maria
  • Ramos, Henrique Pinto
  • Righi, Marcelo Brutti

Abstract

We studied the relationship between expected returns and thirteen risk measures, namely Expected Loss, Value at Risk, Expected Shortfall, Expectile Value at Risk, Entropic, Maximum Loss, Standard Deviation, Negative Semi-Deviation, Shortfall Deviation, Expected Loss Deviation, Shortfall Deviation Risk, Deviation Expectile Value at Risk, and Deviation Entropic. We consider measures that assess the loss, deviation, and both risk concepts simultaneously in a sample of United States (US) stock returns from January 1982 to January 2021. Analyzing the difference between the returns of the higher risk and lower risk portfolios, we report a significant difference for all risk measures tested, except for the Shortfall Deviation. We also perform time-series regressions using the returns of the Fama–French three factors and the Momentum factor as independent variables. When controlling factors are included in the model alphas are not significant, suggesting evidence of no risk premium.

Suggested Citation

  • Fracasso, Laís Martins & Müller, Fernanda Maria & Ramos, Henrique Pinto & Righi, Marcelo Brutti, 2023. "Is there a risk premium? Evidence from thirteen measures," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 182-199.
    • Handle: RePEc:eee:quaeco:v:92:y:2023:i:c:p:182-199
    DOI: 10.1016/j.qref.2023.10.002
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    More about this item

    Keywords

    Stock returns; Pricing; Factor investing; Risk measures; Loss-deviation measures;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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