Crash Sensitivity and the Cross-Section of Expected Stock Returns

Fousseni Chabi-Yo (), Stefan Ruenzi and Florian Weigert ()

No 1324, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: This paper examines whether investors receive compensation for holding crash-sensitive stocks. We capture the crash sensitivity of stocks by their lower tail dependence (LTD) with the market based on copulas. We find that stocks with weak LTD serve as a hedge during crises, but, overall, stocks with strong LTD have higher average future returns. This effect cannot be explained by traditional risk factors and is different from the impact of beta, downside beta, coskewness, and cokurtosis. Our findings are consistent with results from the empirical option pricing literature and support the notion that investors are crash-averse.

Keywords: Asset Pricing; Asymmetric Dependence; Copulas; Crash Aversion; Downside Risk; Tail Risk (search for similar items in EconPapers)
JEL-codes: C12 G01 G11 G12 G17 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2013-03, Revised 2016-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1324.pdf (application/pdf)

Related works:
Journal Article: Crash Sensitivity and the Cross Section of Expected Stock Returns (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2013:24

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