No Pain, No Gain? The Puzzle of Risk-Return Relationship

  • Adam Zaremba
  • Jacob “Koby” Shemer


The relationship between risk and return in finance seems controversial. While the crucial implication of the standard models dictates—the higher the risk, the higher the expected return—the empirical evidence seems to contradict this expectation. Emerging evidence has proven that the standard measures of realized risk, including volatility or systematic risk, negatively predict abnormal returns. Surprisingly, some other measures related to tail risk or downside risk have proven as positive predictors of performance. Importantly, all the measures might help investors to predict abnormal returns. In this chapter, the authors carefully reviewed the risk-based return-predictive signals along with their theoretical and empirical evidence and conducted thorough tests of example strategies across 24 international equity markets.


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© The Author(s) 2018

Authors and Affiliations

  • Adam Zaremba
    • 1
  • Jacob “Koby” Shemer
    • 2
  1. 1.Poznan University of Economics and BusinessPoznanPoland
  2. 2.AlphaBetaTel AvivIsrael

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