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http://ssrn.com/abstract=2011746
 
 

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Crash Sensitivity and the Cross-Section of Expected Stock Returns


Fousseni Chabi-Yo


Ohio State University (OSU) - Fisher College of Business

Stefan Ruenzi


University of Mannheim - Department of International Finance

Florian Weigert


University of St. Gallen - SoF: School of Finance

March 26, 2015


Abstract:     
We examine whether investors receive compensation for holding crash-sensitive stocks. Motivated by a simple asset pricing model, we capture the crash sensitivity of stocks by their lower tail dependence (LTD) with the market based on copulas. We find that stocks with weak LTD serve as a hedge during crises, but, overall, stocks with strong LTD clearly outperform. This effect cannot be explained by traditional risk factors and is different from the impact of beta, downside beta, coskewness, and cokurtosis. Our findings are consistent with results from the empirical option pricing literature and support the notion that stock market investors are crash-averse.

Number of Pages in PDF File: 72

Keywords: Asset Pricing, Asymmetric Dependence, Copulas, Coskewness, Downside Risk, Tail Risk, Crash Aversion

JEL Classification: C12, G01, G11, G12, G17


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Date posted: February 27, 2012 ; Last revised: July 6, 2015

Suggested Citation

Chabi-Yo, Fousseni and Ruenzi, Stefan and Weigert, Florian, Crash Sensitivity and the Cross-Section of Expected Stock Returns (March 26, 2015). Available at SSRN: http://ssrn.com/abstract=2011746 or http://dx.doi.org/10.2139/ssrn.2011746

Contact Information

Fousseni Chabi-Yo
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614 292 8477 (Phone)
HOME PAGE: http://fisher.osu.edu/fin/faculty/chabi-yo/

Stefan Ruenzi (Contact Author)
University of Mannheim - Department of International Finance ( email )
L9, 1-2
Mannheim, 68131
Germany
Florian Weigert
University of Saint Gallen - SoF: School of Finance ( email )
Rosenbergstrasse 52
St.Gallen, CH-9000
Switzerland
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