The Price of Asymmetric Dependence: International Evidence
55 Pages Posted: 29 Apr 2020
Date Written: March 25, 2020
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: Suggested Citation