Systematic Extreme Downside Risk

Posted: 30 Apr 2019

See all articles by Richard D. F. Harris

Richard D. F. Harris

University of Exeter - Business School; University of Exeter

Linh Nguyen

University of Exeter

Evarist Stoja

University of Bristol

Date Written: February 25, 2019

Abstract

We propose new systematic tail risk measures constructed using two different approaches. The first is a non-parametric measure that captures the tendency of a stock to crash at the same time as the market, while the second is based on the sensitivity of stock returns to innovations in market crash risk. Both tail risk measures are associated with a significantly positive risk premium after controlling for other measures of downside risk, including downside beta, coskewness and cokurtosis. Using the new measures, we examine the relevance for investors of the tail risk premium over different horizons.

Keywords: Asset pricing, Tail risk, Comoments, Value at Risk, Systematic risk

JEL Classification: C13, C31, C58, G01, G10, G12

Suggested Citation

Harris, Richard D. F. and Nguyen, Linh and Stoja, Evarist, Systematic Extreme Downside Risk (February 25, 2019). Journal of International Financial Markets, Institutions and Money, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3379017

Richard D. F. Harris

University of Exeter - Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

University of Exeter ( email )

Northcote House
The Queen's Drive
Exeter, Devon EX4 4QJ
United Kingdom

Linh Nguyen

University of Exeter ( email )

Northcote House
The Queen's Drive
Exeter, Devon EX4 4QJ
United Kingdom

Evarist Stoja (Contact Author)

University of Bristol ( email )

School of Economics, Finance and Management
8 Woodland Road
Bristol, BS8 1TN
United Kingdom

HOME PAGE: http://sites.google.com/view/evarist-stoja/

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