Tail Risk Dynamics in Stock Returns: Links to the Macroeconomy and Global Markets Connectedness

Daniele Massacci

Management Science, 2017, vol. 63, issue 9, 3072-3089

Abstract: We propose a new time-varying peaks over threshold model to study tail risk dynamics in equity markets: the laws of motion for the parameters are defined through the score-based approach. We apply the model to daily returns from U.S. size-sorted decile stock portfolios and show that large firms’ tail risk increases during recessions more than small firms’ tail risk. Our results are consistent with the granular hypothesis of aggregate fluctuations, and we quantify the impact of large firms’ tail risk shocks on the economy. A measure of tail connectedness is proposed: evidence from international equity markets shows that tail connectedness increases during periods of turmoil.

Keywords: time-varying tail risk; score-based model; stock returns; uncertainty; tail connectedness (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2016.2488 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:63:y:2017:i:9:p:3072-3089

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().