Crash Sensitivity and the Cross Section of Expected Stock Returns

2018/01/01 by Fousseni Chabi-Yo, Stefan Ruenzi, Florian Weigert · 44 citations
Economics, Econometrics and Finance · Engineering · #Business #Computer science #Crash #Downside risk #Econometrics #Economics #Engineering #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Financial economics #Market Dynamics and Volatility #Stock (firearms) #Tail risk

paper · open access · doi:10.1017/s0022109018000121

published in Journal of Financial and Quantitative Analysis 53(3), 1059-1100 (Cambridge University Press)

openalex publication_date 2018/06/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/06/11

Abstract

This article 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 strong LTD have higher average future returns than stocks with weak LTD. This effect cannot be explained by traditional risk factors and is different from the impact of beta, downside beta, coskewness, cokurtosis, and Kelly and Jiang’s (2014) tail risk beta. Hence, our findings are consistent with the notion that investors are crash-averse.

Citations

• Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation
• Safety First and the Holding of Assets
• Conditional Heteroskedasticity in Asset Returns: A New Approach
• A Non-Parametric Test of Independence
• The Behavior of Stock-Market Prices
• Risk, Return, and Equilibrium: Empirical Tests
• MODELLING ASYMMETRIC EXCHANGE RATE DEPENDENCE*
• Prospect Theory: An Analysis of Decision under Risk
• Liquidity Risk and Expected Stock Returns

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