Common Idiosyncratic Quantile Factors and Asset Prices
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arXiv
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| Format: | Preprint |
| Published: |
2022
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| _version_ | 1866914385074585600 |
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| author | Barunik, Jozef Nevrla, Matej |
| author_facet | Barunik, Jozef Nevrla, Matej |
| contents | We investigate whether the tails of firm-level idiosyncratic return distributions are driven by common shocks. We use quantile factor analysis to extract such common idiosyncratic quantile factors with asymmetric pricing effects and we find a significant premium for innovations to the lower-tail factor: high-beta stocks outperform low-beta stocks by around 7-8% per year. This premium remains significant even when controlling for standard factors, idiosyncratic volatility and tail-risk measures. The downside factor strengthens when intermediary capital is weak and market liquidity is low, and it predicts aggregate market excess returns. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2208_14267 |
| institution | arXiv |
| publishDate | 2022 |
| record_format | arxiv |
| spellingShingle | Common Idiosyncratic Quantile Factors and Asset Prices Barunik, Jozef Nevrla, Matej General Finance Pricing of Securities We investigate whether the tails of firm-level idiosyncratic return distributions are driven by common shocks. We use quantile factor analysis to extract such common idiosyncratic quantile factors with asymmetric pricing effects and we find a significant premium for innovations to the lower-tail factor: high-beta stocks outperform low-beta stocks by around 7-8% per year. This premium remains significant even when controlling for standard factors, idiosyncratic volatility and tail-risk measures. The downside factor strengthens when intermediary capital is weak and market liquidity is low, and it predicts aggregate market excess returns. |
| title | Common Idiosyncratic Quantile Factors and Asset Prices |
| topic | General Finance Pricing of Securities |
| url | https://arxiv.org/abs/2208.14267 |