Higher-beta and higher-volatility equities do not earn commensurately higher returns, a pattern known as the risk anomaly. In this paper, we consider the possibility that the risk anomaly represents mispricing and develop its implications for corporate leverage. The risk anomaly generates a...

The objective of this paper is to examine whether the available data on hedge funds (HFs) and funds-of-hedge funds (FOHFs) can reveal the risk-return trade-off and, if so, to find the best risk measure that captures the cross-sectional variation in HF and FOHF returns. Using the “live funds”...