Betting against correlation: Testing theories of the low-risk effect

• 成果类型: Article
• 署名作者: Asness, Cliff; Frazzini, Andrea; Gormsen, Niels Joachim; Pedersen, Lasse Heje
• 署名单位: University of Chicago; Copenhagen Business School; Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.07.003
• 发表日期: 2020
• 页码: 629-652
• 关键词: Asset pricing; Leverage constraints; Lottery demand; margin; Sentiment

摘要

We test whether the low-risk effect is driven by leverage constraints and, thus, risk should be measured using beta versus behavioral effects and, thus, risk should be measured by idiosyncratic risk. Beta depends on volatility and correlation, with only volatility related to idiosyncratic risk. We introduce a new betting against correlation (BAC) factor that is particularly suited to differentiate between leverage constraints and behavioral explanations. BAC produces strong performance in the US and internationally, supporting leverage constraint theories. Similarly, we construct the new factor SMAX to isolate lottery demand, which also produces positive returns. Consistent with both leverage and lottery theories contributing to the low-risk effect, we find that BAC is related to margin debt while idiosyncratic risk factors are related to sentiment. (C) 2019 The Authors. Published by Elsevier B.V.