Beyond Volatility: Common Factors in Idiosyncratic Quantile Risks

Jozef Baruník and Matej Nevrla

Papers from arXiv.org

Abstract: This study extracts latent factors from the cross-sectional quantiles of firm-level idiosyncratic returns and demonstrates that they carry information that is missed by conventional volatility measures. Notably, exposure to the lower-tail common idiosyncratic quantile factor entails a distinctive risk premium that cannot be explained by existing volatility, downside or tail-related risk factors or characteristics. Furthermore, we demonstrate that factor structures derived from quantiles across the return distribution--which capture its asymmetric features--also possess predictive capabilities regarding aggregate market returns.

Date: 2022-08, Revised 2025-08
New Economics Papers: this item is included in nep-fmk and nep-rmg
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