42 Pages Posted: 10 Nov 2015 Last revised: 13 Nov 2015
Date Written: November 8, 2015
We propose a novel risk measure that relates to subsequent negative conditional stock market returns. Our risk measure considers both the fragility and stress of the market. Fragility is measured by the Fragility Index developed by Berger and Pukthuanthong (2012) and market stress is based on several economic variables. Results show that incorporating both market stress and fragility improves the information content of a risk measure. Our risk measure relates to poor subsequent monthly market returns. We show the risk measure contains predictive information in a purely ex-ante specification.
Keywords: Financial crises; Risk; Asset-pricing
JEL Classification: G01; G10; G14
Suggested Citation: Suggested Citation
Berger, Dave and Pukthuanthong, Kuntara, Fragility, Stress, and Market Returns (November 8, 2015). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2687814