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International tail risk and World Fear

Fabian Hollstein, Duc Binh Benno Nguyen, Marcel Prokopczuk () and Chardin Wese Simen

Journal of International Money and Finance, 2019, vol. 93, issue C, 244-259

Abstract: We examine the pricing of tail risk in international stock markets. Studying all MSCI Developed and Emerging Markets countries, we find that the tail risk of these countries is highly integrated. We find that both local and our newly computed global tail risk strongly predict global equity index excess returns. These results hold both in-sample and out-of-sample. Sorting countries into portfolios by their tail risk generates sizable excess returns across various holding periods. Finally, we find that global tail risk is linked to international economic activity.

Keywords: Jump risk; Tail risk; International Stock Market Returns; Return predictability; International Asset Pricing; Factor models (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 G17 (search for similar items in EconPapers)
Date: 2019
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Working Paper: International Tail Risk and World Fear (2017) Downloads
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DOI: 10.1016/j.jimonfin.2019.01.004

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