Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide

Review of Asset Pricing Studies (2016)

60 Pages Posted: 14 Aug 2013 Last revised: 13 Jan 2017

See all articles by Florian Weigert

Florian Weigert

University of St. Gallen - School of Finance

Date Written: November 25, 2015

Abstract

This paper examines whether investors receive a compensation for holding stocks with a strong sensitivity to extreme market downturns in a sample covering 40 different countries. Worldwide, stocks with strong crash sensitivity deliver average returns of more than 7% p.a. higher than stocks with weak crash sensitivity. The effect is robust across geographical subsamples and is not explained by systematic risk factors and alternative firm characteristics. I show that the risk premium is particularly pronounced in countries that display negative market skewness, high income per capita, and rank high on the Hofstede (2001) individualism index.

Keywords: Asset Pricing, Crash Aversion, International Finance, Tail Risk

JEL Classification: C12, G01, G11, G12, G15, G17, F30

Suggested Citation

Weigert, Florian, Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide (November 25, 2015). Review of Asset Pricing Studies (2016). Available at SSRN: https://ssrn.com/abstract=2309538 or http://dx.doi.org/10.2139/ssrn.2309538

Florian Weigert (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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