PT  - JOURNAL ARTICLE
AU  - James X. Xiong
AU  - Thomas M. Idzorek
AU  - Roger G. Ibbotson
TI  - Volatility versus Tail Risk: <em>Which One Is Compensated in Equity Funds?</em>
AID  - 10.3905/jpm.2014.40.2.112
DP  - 2014 Jan 31
TA  - The Journal of Portfolio Management
PG  - 112--121
VI  - 40
IP  - 2
4099  - https://pm-research.com/content/40/2/112.short
4100  - https://pm-research.com/content/40/2/112.full
AB  - Research that has led to the low-volatility anomaly in cross-sectional stocks from a similar universe indicates that volatility is not compensated with a volatility premium. The authors find evidence of a risk premium, but it depends on the definition or measure of risk. Tail risk measures the probability of having significant losses, and should be what investors care about the most. This article investigates several risk measures, including volatility and tail risk, and finds that volatility is not compensated. Tail risk, however, is compensated with higher expected return in both U.S. and non-U.S. equity funds.TOPICS: VAR and use of alternative risk measures of trading risk, tail risks, in portfolio management