Systematic tail risk

MRC (Maarten) van Oordt; Chen Zhou

doi:10.1017/S0022109016000193

Systematic tail risk

MRC (Maarten) van Oordt^*
, Chen Zhou^*

^*Corresponding author for this work

Econometrics

Research output: Contribution to journal › Article › Academic › peer-review

105 Citations (Scopus)

3 Downloads (Pure)

Abstract

We test for the presence of a systematic tail risk premium in the cross section of expected returns by applying a measure of the sensitivity of assets to extreme market downturns, the tail beta. Empirically, historical tail betas help predict the future performance of stocks in extreme market downturns. During a market crash, stocks with historically high tail betas suffer losses that are approximately 2 to 3 times larger than their low-tail-beta counterparts. However, we find no evidence of a premium associated with tail betas. The theoretically additive and empirically persistent tail betas can help assess portfolio tail risks.

Original language	English
Pages (from-to)	685-705
Number of pages	21
Journal	Journal of Financial and Quantitative Analysis
Volume	51
Issue number	2
DOIs	https://doi.org/10.1017/S0022109016000193
Publication status	Published - 10 Jun 2016

Research programs

ESE - F&A

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10.1017/S0022109016000193

Systematic Tail RiskFinal published version, 218 KBLicence: Article 25fa Dutch Copyright Act

Cite this

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Systematic tail risk

Abstract

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