Multivariate Crash Risk
Markus Huggenberger and
Florian Weigert ()
No 1901, Working Papers on Finance from University of St. Gallen, School of Finance
This paper investigates whether multivariate crash risk is priced in the crosssection of expected stock returns. Motivated by a theoretical asset pricing model, we capture the multivariate crash risk of a stock by a combined measure based on its expected shortfall and its multivariate lower tail dependence with the systematic risk factors of the Carhart (1997) model. We find that stocks with a high exposure to joint crashes of the market and the momentum factor bear a risk premium which is not explained by traditional linear factor models or by other downside risk measures. Our results indicate that accounting for the multivariate crash risk of established state variables helps to understand the cross-section of expected stock returns without further expanding the factor zoo.
Keywords: Asset pricing; Non-linear dependence; Copulas; Crash aversion; Downside risk; Lower tail dependence; Tail risk (search for similar items in EconPapers)
JEL-codes: C58 G01 G11 G12 G17 (search for similar items in EconPapers)
Pages: 78 pages
New Economics Papers: this item is included in nep-ore and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2019:01
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