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Tail risks, firm characteristics, and stock returns

Chen Wang, Xiong Xiong and Dehua Shen

Pacific-Basin Finance Journal, 2022, vol. 75, issue C

Abstract: We focus on the left-tail (right-tail) risk of stocks, that is, the huge losses (gains) of financial assets with a small probability. The empirical results mainly reveal that both the left and the right tail risks of stocks in the Chinese market are negatively related to their one-month-ahead returns and Chinese investor is prone to chase winners. Moreover, the tail risk effect is more pronounced in stocks with more retail investors, less investor attention, and more transparency. Finally, we show that prospect theory and salience theory fail to capture the left tail effect, while the right tail effect is consistent with these theories.

Keywords: Tail risk; Value at risk; Investor attention; Prospect theory; Salience theory (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001494

DOI: 10.1016/j.pacfin.2022.101854

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