Crash Risk in Individual Stocks
51 Pages Posted: 29 Mar 2018 Last revised: 14 Feb 2020
Date Written: February 12, 2020
This paper develops a novel model-free methodology to extract skewness risk premia in individual stocks from options and stock markets. The new measure documents a significant positive skewness risk premium in individual stocks, which massively increased after the 2008/2009 financial crisis, due to an increase in the price of put options (crash protection) in individual stocks. Frictions on short-selling, measured by high short-interest ratio and low ETF ownership are key drivers of idiosyncratic skewness risk premia.
Keywords: Skewness risk premium, financial crisis, short-selling constraints
JEL Classification: G01, G12, G13
Suggested Citation: Suggested Citation