Ergun, Lerby M. (2016) Disaster and fortune risk in asset returns. Systemic Risk Centre Discussion Papers (59). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.
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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.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | https://www.systemicrisk.ac.uk/ |
| Additional Information: | © 2016 The Author |
| Divisions: | Systemic Risk Centre |
| Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G10 - General |
| Date Deposited: | 21 Apr 2016 08:13 |
| Last Modified: | 11 Dec 2024 19:21 |
| Projects: | ES/K002309/1 |
| Funders: | Economic and Social Research Council |
| URI: | http://eprints.lse.ac.uk/id/eprint/66194 |
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