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Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide

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  • Weigert, Florian

Abstract

This paper examines whether investors receive a compensation for holding stocks with a strong sensitivity to extreme market downturns in a sample covering 40 different countries. Worldwide, stocks with strong crash sensitivity deliver average returns of more than 7% p.a. higher than stocks with weak crash sensitivity. The effect is robust across geographical subsamples and is not explained by systematic risk factors and alternative firm characteristics. I show that the risk premium is particularly pronounced in countries that display negative market skewness, high income per capita, and rank high on the Hofstede (2001) individualism index.

Suggested Citation

  • Weigert, Florian, 2013. "Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide," Working Papers on Finance 1325, University of St. Gallen, School of Finance, revised Nov 2015.
    • Handle: RePEc:usg:sfwpfi:2013:25
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    3. Illiashenko, Pavlo, 2019. "“Tough Guy” vs. “Cushion” hypothesis: How does individualism affect risk-taking?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 24(C).

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    More about this item

    Keywords

    Asset Pricing; Crash Aversion; International Finance; Tail Risk;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • F30 - International Economics - - International Finance - - - General

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