IDEAS home Printed from https://ideas.repec.org/a/oup/jfinec/v21y2023i5p1590-1646..html

Quantile Spectral Beta: A Tale of Tail Risks, Investment Horizons, and Asset Prices

Author

Listed:
  • Jozef Baruník
  • Matěj Nevrla

Abstract

This article investigates how two important sources of risk—market tail risk (TR) and extreme market volatility risk—are priced into the cross-section of asset returns across various investment horizons. To identify such risks, we propose a quantile spectral (QS) beta representation of risk based on the decomposition of covariance between indicator functions that capture fluctuations over various frequencies. We study the asymptotic behavior of the proposed estimators of such risk. Empirically, we find that TR is a short-term phenomenon, whereas extreme volatility risk is priced by investors in the long term when pricing a cross-section of individual stocks. In addition, we study popular industry, size and value, profit, investment, or book-to-market portfolios, as well as portfolios constructed from various asset classes, portfolios sorted on cash flow duration, and other strategies. These results reveal that tail-dependent and horizon-specific risks are priced heterogeneously across datasets and are important sources of risk for investors.

Suggested Citation

  • Jozef Baruník & Matěj Nevrla, 2023. "Quantile Spectral Beta: A Tale of Tail Risks, Investment Horizons, and Asset Prices," Journal of Financial Econometrics, Oxford University Press, vol. 21(5), pages 1590-1646.
    • Handle: RePEc:oup:jfinec:v:21:y:2023:i:5:p:1590-1646.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/jjfinec/nbac017
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

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


    Cited by:

    1. Gunay, Samet & Dömötör, Barbara & Víg, Attila András, 2025. "Investigation of emerging market stress under various frequency bands: Evidence from FX market uncertainty and liquidity," Emerging Markets Review, Elsevier, vol. 65(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • 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:oup:jfinec:v:21:y:2023:i:5:p:1590-1646.. 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: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sofieea.html .

    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.