Cross-sectional anomalies and volatility risk in different economic and market cycles

This study examines the exposures of cross-sectional anomalies to volatility risk in different economic and market cycles. The study shows that cross-sectional anomalies exposures can change dramatically. Most notably, the exposure of the value factor to volatility risk changed completely from positive to negative during the financial crisis of 2007-2009, while the returns to the momentum strategy are positively associated with the volatility risk only during crises and market rebound periods, otherwise negative. The findings imply that the value premium is partly in compensation for risk and that the momentum strategy may be a more defensive strategy during crisis.