Disaster and fortune risk in asset returns

Lerby M. Ergun

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Do Disaster risk and Fortune risk fetch a premium or discount in the pricing of individual assets? Disaster risk and Fortune risk are measures for the co-movement of individual stocks with the market, given that the state of the world is extremely bad and extremely good, respectively. To address this question measures of Disaster risk and Fortune risk, derived from statistical Extreme Value Theory, are constructed. The measures are non-parametric and the number of order statistics to be used in the analysis is based on the Kolmogorov-Smirnov distance. This alleviates the problem of an arbitrarily chosen extreme region. The extreme dependence measures are used in Fama-MacBeth cross-sectional asset pricing regressions including Market, Fama-French, Liquidity and Momentum factors. I find that Disaster risk fetches a significant premium of 0.43% for the average stock.

JEL-codes: G10 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2016-03-10
New Economics Papers: this item is included in nep-pr~ and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
http://eprints.lse.ac.uk/66194/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:66194

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().