Idiosyncratic tail risk and expected stock returns: Evidence from the Chinese stock markets

Huaigang Long, Yuexiang Jiang and Yanjian Zhu

Finance Research Letters, 2018, vol. 24, issue C, 129-136

Abstract: We estimate idiosyncratic tail risk according to the extreme value theory. Both portfolio analyses and cross-sectional regressions suggest a significant negative relationship between the idiosyncratic tail risk and the expected returns in Chinese stock markets after controlling for other risk measures including size, book-to-market ratio, beta, momentum, short-term reversals, liquidity, idiosyncratic volatility, downside beta, co-skewness, co-kurtosis, idiosyncratic skewness, idiosyncratic kurtosis, value at risk and maximum daily returns. Turnover explains the negative effect of the idiosyncratic tail risk in Chinese stock markets where individual investors dominate the markets and short sales are constrained.

Keywords: Idiosyncratic tail risk; Extreme value theory; Idiosyncratic volatility; Return predictability (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:24:y:2018:i:c:p:129-136

DOI: 10.1016/j.frl.2017.07.009

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