Crash Risk in Individual Stocks

56 Pages Posted: 29 Mar 2018 Last revised: 9 Apr 2020

See all articles by Paola Pederzoli

Paola Pederzoli

University of Houston - C.T. Bauer College of Business

Date Written: April 7, 2020

Abstract

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

Pederzoli, Paola, Crash Risk in Individual Stocks (April 7, 2020). Swiss Finance Institute Research Paper No. 18-31, Paris December 2018 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=3151975 or http://dx.doi.org/10.2139/ssrn.3151975

Paola Pederzoli (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

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