Event Details

Accounting and Finance, Finance seminar to be presented by Jozef Barunik, Charles University in Prague. Paper title: Common Idiosyncratic Quantile Risk

doc. PhDr. Jozef Baruník, Ph.D. | Fakulta sociálních věd UK (cuni.cz)

Abstract

We identify a new type of risk that is characterised by commonalities in the quantiles of the cross-sectional distribution of asset returns. Our newly proposed quantile risk factor is associated with a quantile-specific risk premium and provides new insights into how upside and downside risks are priced by investors. In contrast to the previous literature, we recover the common structure in cross-sectional quantiles without making confounding assumptions or aggregating potentially non-linear information. We discuss how the new quantile-based risk factor differs from popular volatility and downside risk factors, and we identify where the quantile-dependent risks deserve greater compensation. Quantile factors also have predictive power for aggregate market returns.