Download or read book Extreme Downside Risk and Expected Stock Returns written by Wei Huang and published by . This book was released on 2012 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a measure for extreme downside risk (EDR) to investigate whether bearing such a risk is rewarded by higher expected stock returns. Constructing an EDR proxy with the left tail index in the classical generalized extreme value distribution, we document a significantly positive premium on firm-specific EDR in cross-section of stock returns even after controlling for market, size, value, momentum, and liquidity effects. The EDR premium is more prominent among glamour stocks and when high market returns are expected. High-EDR stocks generally have high idiosyncratic risk, large downside beta, lower coskewness and cokurtosis, and high bankruptcy risk. The EDR premium persists after these characteristics are controlled for. EDR is also closely related to firm-specific Value at Risk (VaR) which substantially impacts EDR's effect on expected stock returns. EDR supplements VaR in predicting stock returns by exhibiting additional explanatory power.

Download or read book Two Essays on Extreme Downside Risk in Financial Markets written by Feng Wu and published by . This book was released on 2009 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Part I of this dissertation, I propose a measure for the extreme downside risk (EDR) to investigate whether bearing such a risk can be rewarded by higher expected stock returns. By constructing an EDR measure with the left tail index in the classical generalized extreme value distribution, I find a significant positive premium on firm-specific EDR in cross-section of stock returns even after I control for size, value, return reversal, momentum, and liquidity factors. EDR serves as a good indicator of extreme market plunges. High-EDR stocks generally exhibit high idiosyncratic volatility, large value-at-risk, large negative co-skewness, and high bankruptcy risk. I also controlled for these characteristics to find that the EDR premium remains robust. Furthermore, the EDR effect exhibits long-run persistence and is not subsumed by business cycles. In Part II, I apply the concept of extreme downside risk to a policy-related issue: In August 1991, NASDAQ introduced a controversial SI minimum bid price threshold as part of its listing maintenance criteria (the dollar delisting rule or one-dollar rule). This part empirically evaluates this rule through an extreme value approach. Utilizing the Generalized Extreme Value distribution model to capture extreme price plummets, I find NASDAQ stocks frequently trading below S1 in the pre-rule period are extremely vulnerable to catastrophic losses. The implementation of the one-dollar rule effectively curbs the extreme downside price movements, which helps to protect investors' interest, uphold their faith in the exchange, and improve the credibility of the market. Such a pattern is prevalent across all industries and is not affected by market movements. The S1 benchmark serves as an appropriate cutoff point in screening the issues listed on the exchange. The minimum price continued listing standard on NASDAQ is justified and has proved to be successful.

Download or read book Downside Risk and the Cross Section of Expected Stock Returns written by Andrin Schett and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates the relationship between downside risk and stock returns. In an economy with agents that are more concerned about downside losses than upside gains (downside risk averse investors), stocks that covary strongly with systematic risk factors in adverse states are expected to earn higher returns. The premium on downside sensitive stocks reflects a compensation for the risk of high negative returns in unfavorable states. Analyzing different risk factors that are proposed in the literature to systematically affect stock returns, I find strong evidence for a downside risk-return relationship for three factors: the returns on the market portfolio, the liquidity innovation factor and a factor reflecting unanticipated changes in the risk premium. I estimate that the premium for bearing market downside risk is approximately 4-6%, for liquidity downside risk 3-5% and 2-3% for stocks that covary strongly with unanticipated (negative) changes in the risk premium.

Download or read book Extreme Downside Risk in Asset Returns written by Lerby M. Ergun and published by . This book was released on 2019 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Does extreme downside risk require a risk premium in the pricing of individual assets? Extreme downside risk is a conditional measure for the co-movement of individual stocks with the market, given that the state of the world is extremely bad. This measure, derivedfrom statistical extreme value theory, is non-parametric. Extreme down-side risk is used in double-sorted portfolios, where I control for the five Fama-French and various non-linear asset pricing factors. I find that the average annual excess return between high- and low-exposure stocks is around 3.5%"--Abstract.

Download or read book Variance Premium Downside Risk and Expected Stock Returns written by Bruno Feunou and published by . This book was released on 2017 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'We decompose total variance into its bad and good components and measure the premia associated with their fluctuations using stock and option data from a large cross-section of firms. The total variance risk premium (VRP) represents the premium paid to insure against fluctuations in bad variance (called bad VRP), net of the premium received to compensate for fluctuations in good variance (called good VRP). Bad VRP provides a direct assessment of the degree to which asset downside risk may become extreme, while good VRP proxies for the degree to which asset upside potential may shrink. We find that bad VRP is important economically; in the cross-section, a one-standard-deviation increase is associated with an increase of up to 13% in annualized expected excess returns. Simultaneously going long on stocks with high bad VRP and short on stocks with low bad VRP yields an annualized risk-adjusted expected excess return of 18%. This result remains significant in double-sort strategies and cross-sectional regressions controlling for a host of firm characteristics and exposures to regular and downside risk factors'--Abstract, p. ii.

Download or read book Downside Correlation and Expected Stock Returns written by Andrew Ang and published by . This book was released on 2011 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: If investors are more averse to the risk of losses on the downside than of gains on the upside, investors ought to demand greater compensation for holding stocks with greater downside risk. Downside correlations better capture the asymmetric nature of risk than downside betas, since conditional betas exhibit little asymmetry across falling and rising markets. We find that stocks with high downside correlations with the market, which are correlations over periods when excess market returns are below the mean, have high expected returns. Controlling for the market beta, the size effect, and the book-to-market effect, the expected return on a portfolio of stocks with the greatest downside correlations exceeds the expected return on a portfolio of stocks with the least downside correlations by 6.55% per annum. We find that part of the profitability of investing in momentum strategies can be explained as compensation for bearing high exposure to downside risk.

Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.

Download or read book The Extreme Bounds of the Cross section of Expected Stock Returns written by J. Benson Durham and published by . This book was released on 2002 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Expected Stock Returns and the Correlation Risk Premium written by Adrian Buss and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Expected Stock Returns and the Correllation Risk Premium written by Adrian Buss and published by . This book was released on 2018 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Joint Extreme Events in Equity Returns and Liquidity and Their Cross sectional Pricing Implications written by Stefan Ruenzi and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is lowest when market liquidity is lowest.

Download or read book Geopolitical Risk on Stock Returns Evidence from Inter Korea Geopolitics written by Seungho Jung and published by International Monetary Fund. This book was released on 2021-10-22 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate how corporate stock returns respond to geopolitical risk in the case of South Korea, which has experienced large and unpredictable geopolitical swings that originate from North Korea. To do so, a monthly index of geopolitical risk from North Korea (the GPRNK index) is constructed using automated keyword searches in South Korean media. The GPRNK index, designed to capture both upside and downside risk, corroborates that geopolitical risk sharply increases with the occurrence of nuclear tests, missile launches, or military confrontations, and decreases significantly around the times of summit meetings or multilateral talks. Using firm-level data, we find that heightened geopolitical risk reduces stock returns, and that the reductions in stock returns are greater especially for large firms, firms with a higher share of domestic investors, and for firms with a higher ratio of fixed assets to total assets. These results suggest that international portfolio diversification and investment irreversibility are important channels through which geopolitical risk affects stock returns.

Download or read book Extreme Downside Risk and Financial Crises written by Richard D. F. Harris and published by . This book was released on 2015 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics

Download or read book A Novel Downside Risk Measure and Expected Returns written by Jinjing Liu and published by . This book was released on 2019 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several studies have found that the cross-section of stock returns reflects a risk premium for bearing downside risk; however, existing measures of downside risk have poor power for predicting returns. Therefore, this paper proposes a novel measure of downside risk, the ES-implied beta, to improve the prediction of the cross-section of asset returns. The ES-implied beta explains stock returns over the same period as well as the widely used downside beta, but also has strong predictive power over future returns. In the empirical analysis, although the widely used downside beta shows a weak relation with future expected returns, the ES-implied beta implies a statistically and economically significant risk premium of 0.5 percent per month. The predictive power of the ES-implied beta is not explained by the cross-sectional effects from the CAPM beta, size, book-to-market ratio, momentum, coskewness, cokurtosis or liquidity beta, nor does it depend on the design of the empirical analysis.

Download or read book Extreme Correlation of International Equity Markets written by François M. Longin and published by . This book was released on 2000 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Extreme Downside Risk Spillover from the United States and Japan to Asian Pacific Stock Markets written by Lu Liu and published by . This book was released on 2018 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a probit approach to measure and forecast extreme downside risks in Asian Pacific markets given information on extreme negative shocks in the U.S. and Japanese markets. The extreme downside risk of a market is measured as the occurrence of market returns falling below left-tail Value at Risk in a Markov switching framework. The empirical findings are consistent with the following notions. First, extreme downside movements of the S&P 500 and Nikkei 225 are significantly predictive for extreme downside movements in all of the investigated Asian-Pacific markets. Second, the majority of Asian-Pacific markets become more sensitive to the Japan's extreme negative shocks when the Japanese market switches into turbulent periods, whereas the U.S. spillover effect is enhanced only on Taiwan during the U.S. turbulent periods. Third, mainland China is overall the least affected by the extreme negative shocks in the United States and Japan, while Australia is the most sensitive to the United States and Singapore is the most vulnerable to Japan.