IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v132y2024ics0264999323004431.html
   My bibliography  Save this article

What drives the tail risk effect in the Chinese stock market?

Author

Listed:
  • Sun, Kaisi
  • Wang, Hui
  • Zhu, Yifeng

Abstract

In this paper, we investigate the existence and source of the tail risk effect in the Chinese stock market. The cross-section relationship between the tail risk and stock returns in China is mixed in the literature. By using data over the time period from January 2000 to December 2020, we observe that the tail risk is negatively related to expected returns only when excluding stocks with the bottom 30% market capitalization. Through market mechanisms' analysis, we identify that the negative tail risk effect can be induced by the investors’ irrational biases and limits to arbitrage. In addition, our research demonstrates that implementation of the margin trading system not only mitigates tail risk but also suppresses the negative tail risk effect for targeted stocks.

Suggested Citation

  • Sun, Kaisi & Wang, Hui & Zhu, Yifeng, 2024. "What drives the tail risk effect in the Chinese stock market?," Economic Modelling, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:ecmode:v:132:y:2024:i:c:s0264999323004431
    DOI: 10.1016/j.econmod.2023.106631
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999323004431
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2023.106631?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Tail risk effect; Investor irrationality; Limits to arbitrage; Margin trading;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    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:eee:ecmode:v:132:y:2024:i:c:s0264999323004431. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    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.