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Multivariate crash risk
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DOI：10.1016/j.jfineco.2021.07.016.png)
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Abstract
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This paper investigates whether multivariate crash risk (MCRASH), defined as exposure to extreme realizations of multiple systematic factors, is priced in the cross-section of ex-pected stock returns. We derive an extended linear model with a positive premium for MCRASH, and we empirically confirm that stocks with high MCRASH earn significantly higher future returns than stocks with low MCRASH. The premium is not explained by linear factor exposures, alternative downside risk measures, or stock characteristics. Ex-tending market-based definitions of crash risk to other well-established factors helps to determine the cross-section of expected stock returns without further expanding the fac-tor zoo.(c) 2021 Elsevier B.V. All rights reserved.
Keywords:
Asset pricing
Nonlinear dependence
Crash aversion
Downside risk
Tail risk
Lower tail dependence
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JOURNAL OF FINANCE
JOURNAL OF FINANCEIF9.5
PREAI
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