This paper shows theoretically and empirically that beta- and volatility-based low risk anomalies are driven by return … default risk. With increasing downside risk, the standard capital as- set pricing model increasingly overestimates required … equity returns relative to firms' true (skew-adjusted) market risk. Empirically, the profitability of betting against beta …

This paper analyzes the influence of downside risk on defaultable bond returns. By introducing a defaultable bond …-trading model, we show that the decline in market risk tolerance and information accuracy leads to trading loss under downside … conditions. Our empirical analysis indicates that downside risk can explain a large proportion of the variation in yield spreads …