Common Idiosyncratic Quantile Factors and Asset Prices
General Finance
2026-03-12 v5 Pricing of Securities
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.
Keywords
Cite
@article{arxiv.2208.14267,
title = {Common Idiosyncratic Quantile Factors and Asset Prices},
author = {Jozef Barunik and Matej Nevrla},
journal= {arXiv preprint arXiv:2208.14267},
year = {2026}
}