Journal article
Downside risk and stock returns in the G7 countries: An empirical analysis of their long-run and short-run dynamics
Journal of banking & finance, v 93, pp 21-32
Aug 2018
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
Any risk-return tradeoff analysis in aggregate equity markets relies on appropriate measures of risk, in most studies based on (co-)variance relations. Consequently, in integrated global markets, country-specific expected return is priced with a world price of covariance risk. This study relates domestic excess stock returns to the world downside risk. Evidence shows that downside tail risk (as a multiplier of volatility) has long memory cointegration properties; hence, the underlying risk aversion behavior in an integrated market is associated with the conditional quantile ratio, the correlation of stock returns, and the cointegrating coefficient of downside risk. Our empirical results based on G7 countries indicate that investors are averse to downside risk, which via Cornish–Fisher expansions is related to higher moment risk and interpretable in a utility-based decision framework.
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Details
- Title
- Downside risk and stock returns in the G7 countries: An empirical analysis of their long-run and short-run dynamics
- Creators
- Cathy Yi-Hsuan Chen - Humboldt-Universität zu BerlinThomas C. Chiang - Drexel UniversityWolfgang Karl Härdle - Humboldt-Universität zu Berlin
- Publication Details
- Journal of banking & finance, v 93, pp 21-32
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- [Retired Faculty]
- Web of Science ID
- WOS:000442977400002
- Scopus ID
- 2-s2.0-85048640682
- Other Identifier
- 991019167568004721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance
- Economics