Beware of the Crash Risk: Tail Beta and the Cross-Section of Stock Returns in China

30 Pages Posted: 8 Apr 2019 Last revised: 3 May 2019

See all articles by Huaigang Long

Huaigang Long

Zhejiang University

Adam Zaremba

Poznań University of Economics and Business; University of Dubai

Yuexiang Jiang

Zhejiang University - College of Economics

Date Written: March 3, 2019

Abstract

We investigate the pricing of systematic tail risk measured by tail beta in the Chinese equity market. Using an array of tests, we examine the performance of more than 3,300 stocks for the years 1999 through 2018. Contrary to evidence from developed markets, we demonstrate a strong negative relationship between the tail beta and future returns. The effect is robust to many considerations and cannot be explained by established pricing factors or alternative risk or illiquidity measures. We link our findings to specific characteristics of the Chinese stock market.

Keywords: Systematic Tail Risk, Tail Beta, Extreme Value Theory, China, Equity Market, Asset Pricing, Return Predictability, Low-Risk Anomaly

JEL Classification: G12, G14

Suggested Citation

Long, Huaigang and Zaremba, Adam and Jiang, Yuexiang, Beware of the Crash Risk: Tail Beta and the Cross-Section of Stock Returns in China (March 3, 2019). Available at SSRN: https://ssrn.com/abstract=3353088 or http://dx.doi.org/10.2139/ssrn.3353088

Huaigang Long

Zhejiang University ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

Adam Zaremba (Contact Author)

Poznań University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

University of Dubai ( email )

Academic City
Dubai, 14143
United Arab Emirates

HOME PAGE: http://adamzaremba.pl/

Yuexiang Jiang

Zhejiang University - College of Economics ( email )

Yuquan Campus 38 Zheda Road
Hangzhou, Zhejiang 310027
China

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