2022/08/30 by Barunik, Jozef, Nevrla, Matej
#FOS: Economics and business #General Finance (q-fin.GN) #Pricing of Securities (q-fin.PR)
paper · doi:10.48550/arxiv.2208.14267
This study extracts latent factors from the cross-sectional quantiles of firm-level idiosyncratic returns and demonstrates that they carry information that is missed by conventional volatility measures. Notably, exposure to the lower-tail common idiosyncratic quantile factor entails a distinctive risk premium that cannot be explained by existing volatility, downside or tail-related risk factors or characteristics. Furthermore, we demonstrate that factor structures derived from quantiles across the return distribution--which capture its asymmetric features--also possess predictive capabilities regarding aggregate market returns.