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Stoja, Evarist, Polanski, Arnold 
ORCID: https://orcid.org/0000-0001-9146-6364 and Nguyen, Linh H.
(2024)
The taxonomy of tail risk.
Journal of Financial Research.
ISSN 0270-2592
Abstract
We use tail events at different levels of severity to define an asset's tail risk and to decompose the latter into a systematic and an idiosyncratic component. The systematic component captures an asset's tendency to experience joint tail losses with the market and generalizes a classic tail dependence coefficient. However, the idiosyncratic component consists of two parts: idiosyncratic tail risk that leads to asset-specific tail losses and tail risk cushioning that dampens the tail losses emanating from the market. Tail risk cushioning is a novel concept that arises naturally in our framework, is consistent with the previous two and completes the taxonomy of tail risk. We examine the performance of our tail risk decomposition on a large dataset, confirming some previous results on tail risk and uncovering new theoretical and empirical findings.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | tail dependence,tail risk decomposition,systematic tail risk,idiosyncratic tail risk,tail risk cushioning |
| Faculty \ School: | Faculty of Social Sciences > School of Economics |
| UEA Research Groups: | Faculty of Social Sciences > Research Groups > Applied Econometrics And Finance Faculty of Social Sciences > Research Groups > Economic Theory |
| Depositing User: | LivePure Connector |
| Date Deposited: | 31 Jul 2024 18:30 |
| Last Modified: | 04 Aug 2024 05:30 |
| URI: | https://ueaeprints.uea.ac.uk/id/eprint/96085 |
| DOI: | 10.1111/jfir.12423 |
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