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Home | Events Archive | A Non-Linear Market Model
Seminar

A Non-Linear Market Model


  • Series
    Erasmus Econometric Institute Series
  • Speakers
    Tobias Sichert (Stockholm School of Economics, Sweden)
  • Field
    Econometrics
  • Location
    Erasmus University Rotterdam, E building, room ET-14
    Rotterdam
  • Date and time

    May 02, 2024
    12:00 - 13:00

Abstract
I show that non-linear pricing of market risk can explain many prominent cross-sectional stock return anomalies, such as momentum, betting-against-beta, idiosyncratic volatility, and liquidity.
The non-linear pricing model is inferred from options data without assumptions on the pricing relationship. I further document that many anomalies have a strong tail risk exposure, which is successfully priced by the model. A key feature of the model is a sizable upside risk premium of approximately 4% per annum. Finally, the pricing results can be explained with a compensation for exposure to systematic variance risk.