Is systemic risk systematic? Evidence from the U.S. stock markets

Seo Joon Choi, Kanghyun Kim and Sunyoung Park

International Journal of Finance & Economics, 2020, vol. 25, issue 4, 642-663

Abstract: The distinction between the role of systemic risk and the systematic risk remains unclear and is sometimes confusing. In this paper, we exploit three types of systemic risk measurements and examine their role as a systematic risk component in the equity market. We first construct the systemic risk factors by using the portfolio mimicking method. Then we analyse the systemic risk factors through the lens of the empirical asset pricing test to determine whether the factors are systematically priced in the equity market. As a result, we empirically find evidence that the systemic risk factors are systematically priced in the equity market, indicating that the systemic risk is compensated for the higher returns.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:25:y:2020:i:4:p:642-663

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