IDEAS home Printed from https://ideas.repec.org/a/bdy/modfin/v1y2023i1p17-29id7.html
   My bibliography  Save this article

Is tail risk priced in the cross-section of international stock index returns?

Author

Listed:
  • Aleksander Mercik

Abstract

This study examines the predictive power of tail risk measures in stock indices returns using a comprehensive dataset covering 50 countries from 1926 to 2021. Our findings reveal that tail risk measures exhibit predictive power when considered independently. However, their forecasting abilities disappear when other risk and return factors are incorporated. This suggests that tail risk measures do not contain incremental information about the cross-section of stock returns beyond the commonly used global factors. Our findings are robust across various considerations, holding for alternative tail risk measure types, estimation periods, and different control variables subsets.

Suggested Citation

  • Aleksander Mercik, 2023. "Is tail risk priced in the cross-section of international stock index returns?," Modern Finance, Modern Finance Institute, vol. 1(1), pages 17-29.
    • Handle: RePEc:bdy:modfin:v:1:y:2023:i:1:p:17-29:id:7
    as

    Download full text from publisher

    File URL: https://mf-journal.com/article/view/7/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ang, Andrew & Hodrick, Robert J. & Xing, Yuhang & Zhang, Xiaoyan, 2009. "High idiosyncratic volatility and low returns: International and further U.S. evidence," Journal of Financial Economics, Elsevier, vol. 91(1), pages 1-23, January.
    2. George P. Gao & Xiaomeng Lu & Zhaogang Song, 2019. "Tail Risk Concerns Everywhere," Management Science, INFORMS, vol. 65(7), pages 3111-3130, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Long, Huaigang & Chiah, Mardy & Zaremba, Adam & Umar, Zaghum, 2024. "Changes in shares outstanding and country stock returns around the world," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 90(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lee, Kuan-Hui & Yang, Cheol-Won, 2022. "The world price of tail risk," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    2. Smajlbegovic, Esad, 2019. "Regional Economic Activity and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(3), pages 1051-1082, June.
    3. Tan, Monica & Liu, Bin, 2016. "CEO's managerial power, board committee memberships and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 21-30.
    4. Blitz, David & Vidojevic, Milan, 2017. "The profitability of low-volatility," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 33-42.
    5. Liya Chu & Xue-Zhong He & Kai Li & Jun Tu, 2022. "Investor Sentiment and Paradigm Shifts in Equity Return Forecasting," Management Science, INFORMS, vol. 68(6), pages 4301-4325, June.
    6. Wang, Wenzhao, 2020. "Institutional investor sentiment, beta, and stock returns," Finance Research Letters, Elsevier, vol. 37(C).
    7. Turan G. Bali & Armen Hovakimian, 2009. "Volatility Spreads and Expected Stock Returns," Management Science, INFORMS, vol. 55(11), pages 1797-1812, November.
    8. Kent Daniel & David Hirshleifer, 2015. "Overconfident Investors, Predictable Returns, and Excessive Trading," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 61-88, Fall.
    9. Vidal-García, Javier & Vidal, Marta, 2014. "Seasonality and idiosyncratic risk in mutual fund performance," European Journal of Operational Research, Elsevier, vol. 233(3), pages 613-624.
    10. Cheng, Mingmian & Liao, Yuan & Yang, Xiye, 2023. "Uniform predictive inference for factor models with instrumental and idiosyncratic betas," Journal of Econometrics, Elsevier, vol. 237(2).
    11. Zhang, Bing & Chen, Wei & Yeh, Chung-Ying, 2021. "Turnover premia in China's stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    12. Abugri, Benjamin A. & Dutta, Sandip, 2014. "Are we overestimating REIT idiosyncratic risk? Analysis of pricing effects and persistence," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 249-259.
    13. Suzanne G. M. Fifield & David G. McMillan & Fiona J. McMillan, 2020. "Is there a risk and return relation?," The European Journal of Finance, Taylor & Francis Journals, vol. 26(11), pages 1075-1101, July.
    14. Lu, Jing & Ho, Keng-Yu & Ho, Po-Hsin & Ko, Kuan-Cheng, 2023. "CEO overconfidence, lottery preference and the cross-section of stock returns," Finance Research Letters, Elsevier, vol. 54(C).
    15. Malcolm Baker & Mathias F. Hoeyer & Jeffrey Wurgler, 2016. "The Risk Anomaly Tradeoff of Leverage," NBER Working Papers 22116, National Bureau of Economic Research, Inc.
    16. Frazzini, Andrea & Pedersen, Lasse Heje, 2014. "Betting against beta," Journal of Financial Economics, Elsevier, vol. 111(1), pages 1-25.
    17. Ziegler, Andreas & Busch, Timo & Hoffmann, Volker H., 2011. "Disclosed corporate responses to climate change and stock performance: An international empirical analysis," Energy Economics, Elsevier, vol. 33(6), pages 1283-1294.
    18. Bazdresch, Santiago, 2011. "Product differentiation and systematic risk: theory and empirical evidence," MPRA Paper 35504, University Library of Munich, Germany, revised 01 Nov 2011.
    19. Liu, Hao & Chen, Yue & Wan, Wei & Zhang, Qun, 2021. "A novel explanation for idiosyncratic volatility anomaly: An asset decomposition perspective," Economics Letters, Elsevier, vol. 206(C).
    20. Wang, Wenzhao & Su, Chen & Duxbury, Darren, 2021. "Investor sentiment and stock returns: Global evidence," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 365-391.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdy:modfin:v:1:y:2023:i:1:p:17-29:id:7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Adam Zaremba (email available below). General contact details of provider: https://mf-journal.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.