56 Pages Posted: 27 Feb 2012 Last revised: 12 Feb 2016
Date Written: December 27, 2015
This paper examines whether investors receive compensation for holding crash-sensitive stocks. 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 have higher average future returns. 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 investors are crash-averse.
Keywords: Asset Pricing, Asymmetric Dependence, Copulas, Coskewness, Downside Risk, Tail Risk, Crash Aversion
JEL Classification: C12, G01, G11, G12, G17
Suggested Citation: Suggested Citation
Chabi-Yo, Fousseni and Ruenzi, Stefan and Weigert, Florian, Crash Sensitivity and the Cross-Section of Expected Stock Returns (December 27, 2015). University of St.Gallen, School of Finance Research Paper No. 2013/24. Available at SSRN: https://ssrn.com/abstract=2011746 or http://dx.doi.org/10.2139/ssrn.2011746