Tail Risk and Asset Prices

• 成果类型: Article
• 署名作者: Kelly, Bryan; Jiang, Hao
• 署名单位: University of Chicago; National Bureau of Economic Research; Michigan State University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhu039
• 发表日期: 2014
• 页码: 2841
• 关键词: expected stock returns; rare disasters; MARKET VOLATILITY; BEHAVIOR; models; tests; index; fluctuations; PERSPECTIVE; performance

摘要

We propose a new measure of time-varying tail risk that is directly estimable from the cross-section of returns. We exploit firm-level price crashes every month to identify common fluctuations in tail risk among individual stocks. Our tail measure is significantly correlated with tail risk measures extracted from S&P 500 index options and negatively predicts real economic activity. We show that tail risk has strong predictive power for aggregate market returns. Cross-sectionally, stocks with high loadings on past tail risk earn an annual three-factor alpha 5.4% higher than stocks with low tail risk loadings. We explore potential mechanisms giving rise to these asset pricing facts.