Does systematic tail risk matter?

Stoja, Evarist, Polanski, Arnold ORCID:, Nguyen, Linh H. and Pereverzin, Aleksandr (2023) Does systematic tail risk matter? Journal of International Financial Markets, Institutions & Money, 82. ISSN 1042-4431

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Systematic tail risk is considered an important determinant of expected returns on risky assets. We examine its impact from two perspectives in a unified framework which originates from a simple asset pricing model. From the first perspective, systematic tail risk is proxied by a generalized tail dependence coefficient and is compensated with an economically sizeable and statistically significant premium. From the second perspective, systematic tail risk is proxied by the product of the same coefficient with a normalised tail risk measure and does not appear to earn a premium. We examine these contradictory findings and attempt to reconcile them. Evidence suggests that the components of our second systematic tail risk measure may be subject to common features. This finding may help explain the contradictory evidence in the literature.

Item Type: Article
Uncontrolled Keywords: risk premium,systematic tail risk,tail dependence,tail risk beta,finance,economics and econometrics ,/dk/atira/pure/subjectarea/asjc/2000/2003
Faculty \ School: Faculty of Social Sciences > School of Economics
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Depositing User: LivePure Connector
Date Deposited: 15 Dec 2022 04:14
Last Modified: 29 Jan 2023 06:30
DOI: 10.1016/j.intfin.2022.101698

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