Ex-ante

Macroeconomics

Volatility (finance)

Capital asset pricing model

Economics

Computer science

Business

Skewness

Systematic risk

Econometrics

Financial economics

Programming language

BETA (programming language)

The Journal of Finance

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.

Low‐Risk Anomalies?