Characterizing the Asymmetric Dependence Premium

Jamie Alcock and Anthony Hatherley

Review of Finance, 2017, vol. 21, issue 4, 1701-1737

Abstract: We examine the price of asymmetric dependence (AD) in the cross section of US equities. Using a β-invariant AD metric, we demonstrate that the return premium for AD is approximately 47% of the premium for β. The premium for lower-tail AD is equivalent to 26% of the market risk premium and has been relatively constant through time. The discount associated with upper-tail AD is 29% of the market risk premium and has been increasing markedly in recent years. Our findings have substantial implications for the cost of capital, investor expectations, portfolio management, and performance assessment.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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