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

Florian Weigert ()

No 1325, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: This paper examines whether investors receive a compensation for holding stocks with a strong sensitivity to extreme market downturns in a sample covering 40 different 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 the Hofstede (2001) individualism index.

Keywords: Asset Pricing; Crash Aversion; International Finance; Tail Risk (search for similar items in EconPapers)
JEL-codes: C12 F30 G01 G11 G12 G15 G17 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2013-03, Revised 2015-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2013:25

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