Common Idiosyncratic Quantile Factors and Asset Prices
Abstract
We investigate whether the tails of firm-level idiosyncratic return distributions are driven by common shocks. We use quantile factor analysis to extract such common idiosyncratic quantile factors with asymmetric pricing effects and we find a significant premium for innovations to the lower-tail factor: high-beta stocks outperform low-beta stocks by around 7-8% per year. This premium remains significant even when controlling for standard factors, idiosyncratic volatility and tail-risk measures. The downside factor strengthens when intermediary capital is weak and market liquidity is low, and it predicts aggregate market excess returns.
Fields of Study & Subjects
Financial Markets and Investment Strategies
Market Dynamics and Volatility
Financial Risk and Volatility Modeling
Publication details
- Journal / source
- Journal of Financial and Quantitative Analysis
- Publisher
- Cambridge University Press (CUP)
- Pages
- 1–69
- Publication date
- 10 June 2026
- Language
- EN