The Price of Asymmetric Dependence: International Evidence

55 Pages Posted: 29 Apr 2020

See all articles by Jamie Alcock

Jamie Alcock

The University of Sydney Business School; Centre for International Finance and Regulation (CIFR)

Petra Sinagl

University of Iowa - Department of Finance

Date Written: March 25, 2020

Abstract

Asymmetric dependence between stock returns and market returns is significantly priced in international equity returns. Of all the commonly considered factors, asymmetric dependence is the only factor priced in all 38 markets examined. Internationally, investors require additional compensation to hold assets displaying asymmetric dependence. The degree of asymmetric dependence increases faster in countries experiencing stronger growth in their financial markets. Asymmetric dependence is stronger in fast-developing equity markets than in the US market. Our findings support recognition of asymmetric dependence as a risk factor that has significant implications for, inter alia, asset pricing, cost of capital, and performance evaluation of international equities.

Keywords: International Asset Pricing, Asymmetric Dependence, State-Dependent Return Correlations

JEL Classification: G12

Suggested Citation

Alcock, Jamie and Sinagl, Petra, The Price of Asymmetric Dependence: International Evidence (March 25, 2020). Available at SSRN: https://ssrn.com/abstract=3568496 or http://dx.doi.org/10.2139/ssrn.3568496

Jamie Alcock

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Petra Sinagl (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

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