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Systematic Tail Risk
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DOI：10.1017/S0022109016000193.png)
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Abstract
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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.
Keywords:
PARTIAL MOMENT FRAMEWORK
COVARIANCE-MATRIX
EXPECTED RETURNS
EQUITY RETURNS
CROSS-SECTION
DOWNSIDE RISK
STOCK RETURNS
MARKETS
PREFERENCE
EQUILIBRIUM
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Nonlinear pricing kernels, kurtosis preference, and evidence from the cross section of equity returns.png)
JOURNAL OF FINANCE
JOURNAL OF FINANCEIF9.5
PREAI
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