International Tail Risk and World Fear

35 Pages Posted: 27 Nov 2017 Last revised: 17 Sep 2019

See all articles by Fabian Hollstein

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management

Duc Binh Benno Nguyen

Leibniz Universität Hannover - Faculty of Economics and Management

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Chardin Wese Simen

University of Liverpool Management School

Date Written: January 7, 2019

Abstract

We examine the pricing of tail risk in international stock markets. Studying all MSCI Developed and Emerging Markets countries, we find that the tail risk of these countries is highly integrated. We find that both local and our newly computed global tail risk strongly predict global equity index excess returns. These results hold both in-sample and out-of-sample. Sorting countries into portfolios by their tail risk generates sizable excess returns across various holding periods. Finally, we find that global tail risk is linked to international economic activity.

Keywords: Jump Risk, Tail Risk, International Stock Market Returns, Return Predictability, International Asset Pricing, Factor Models

JEL Classification: G01, G11, G12, G17

Suggested Citation

Hollstein, Fabian and Nguyen, Duc Binh Benno and Prokopczuk, Marcel and Wese Simen, Chardin, International Tail Risk and World Fear (January 7, 2019). Journal of International Money and Finance, Vol. 93, 2019, Available at SSRN: https://ssrn.com/abstract=3075124 or http://dx.doi.org/10.2139/ssrn.3075124

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Duc Binh Benno Nguyen (Contact Author)

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Chardin Wese Simen

University of Liverpool Management School ( email )

Management School
University of Liverpool
Liverpool, L69 7ZH
United Kingdom

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