Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide

Florian Weigert

The Review of Asset Pricing Studies, 2016, vol. 6, issue 1, 135-178

Abstract: This paper examines whether investors receive compensation for holding stocks with a strong sensitivity to extreme market downturns in a sample covering forty countries. Worldwide, stocks with strong crash sensitivity deliver average returns of more than 7% p.a. higher than stocks with weak crash sensitivity. The effect is robust across geographical subsamples and is not explained by systematic risk factors and alternative firm characteristics. I show that the risk premium is particularly pronounced in countries that display negative market skewness, high income per capita, and rank high on Hofstede’s individualism index.Received July 2, 2015; accepted November 20, 2015 by Editor Raman Uppal.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:6:y:2016:i:1:p:135-178.

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