One of the main explanations for the idiosyncratic volatility (IVOL) puzzle (i.e., the negative relation between lagged … IVOL and returns) is a missing risk factor. We show analytically that if IVOL proxies for a missing risk factor, then the … risk factors. Overall, our results suggest that both diversifiable (i.e., true idiosyncratic risk) and non …

significantly, when an inter-temporal risk parity strategy is applied. Volatility clustering and fat tails are behind this …Inter-temporal risk parity is a strategy that rebalances risky assets and cash in order to target a constant level of … ex-ante risk over time. When applied to equities and compared to a buy-and-hold portfolio it is known to improve the …

We discuss how to build ETF risk models. Our approach anchors on i) first building a multilevel (non …-)binary classification/taxonomy for ETFs, which is utilized in order to define the risk factors, and ii) then building the risk models based … on these risk factors by utilizing the heterotic risk model construction of https://ssrn.com/abstract=2600798 (for binary …

While it is established that idiosyncratic volatility has a negative impact on the cross-section of future stock … returns, the relationship between idiosyncratic volatility and future hedge fund returns is largely unexplored. We document … that hedge funds with high idiosyncratic volatility outperform and this pattern is explained by the positive return effect …

Due to arbitrage risk asymmetries, the relationship between idiosyncratic risk and expected returns is positive …) legs of the anomaly portfolios with the highest idiosyncratic volatility produces monthly abnormal returns ranging from 0 … of idiosyncratic risk from the alternative models and throughout different periods …

This paper shows that tracking error volatility (TEV) is characterized by reversion toward the mean. Mutual funds with …

We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic and … conditional equity premium and risk-free rate in equilibrium. Our empirical analysis shows that the equity premium appears to be … earned for facing uncertainty, especially high uncertainty that is disconnected from lower volatility, rather than for facing …

This paper introduces an alternate measure of idiosyncratic risk leveraged from the decomposition method to further … eliminate the residual systematic risk inherent in the factor asset pricing model. Combining both complementary techniques … contributes to a more comprehensive firm-level idiosyncratic risk that is crucial in both portfolio diversification and alpha …

We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic, and … conditional equity premium and risk-free rate in equilibrium. Our empirical analysis shows that the equity premium appears to be … earned for facing uncertainty, especially high uncertainty that is disconnected from lower volatility, rather than for facing …