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Prof. Paul Schneider, SFI@USI, wins 2015 Q Group Jack Treynor prize

Posted by
Anita Belitz Krasniqi
on
Tuesday, April 5, 2016 - 09:00

SFI Prof. Paul Schneider, SFI@USI, and co-authors win the 2015 Jack Treynor Prize awarded by the Q Group for their research on “Low Risk Anomalies?”

Research in asset pricing frequently faces the challenge of failing to explain the surprisingly good performance of low risk equity. To crack this conundrum, the researchers include the skewness of equity returns to predict equity returns. Theoretically, they show that standard CAPM predictions overestimate stock returns for firms whose return distributions are negatively skewed due to credit risk. The low returns observed among high CAPM beta stocks may simply be reflecting the fact that these stocks exhibit less negative co-skewness. Empirically, results show that skewness conveys more information regarding stock returns than the information that measures of equity volatility and CAPM betas do. 

Further analysis shows that betting against beta or volatility generates high risk-adjusted excess returns for firms that have the most negatively skewed return distributions. Quantitative impacts are large, as the skew-related return differential of betting against beta or volatility, compared to high skew firms, can reach 1.76% per month. 

Overall, results highlight the fact that higher moment preferences are essential to understand asset prices.