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International Tail Risk and World Fear

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

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: We examine the pricing of tail risk in international stock markets. We find that the tail risk of different countries is highly integrated. Introducing a new World Fear index, we find that local and global aggregate market returns are mainly driven by global tail risk rather than local tail risk. World fear is also priced in the crosssection of stock returns. Buying stocks with high sensitivities to World Fear while selling stocks with low sensitivities generates excess returns of up to 2.72% per month.

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)
New Economics Papers: this item is included in nep-ifn and nep-rmg
Date: 2017-11
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Journal Article: International tail risk and World Fear (2019) Downloads
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