Aggregate Tail Risk, Economic Disasters, and the Cross-Section of Expected Returns

2014 ◽  
Author(s):  
David A. Chapman ◽  
Michael F. Gallmeyer
Keyword(s):  
Cross Section ◽  
Expected Returns ◽  
Tail Risk ◽  
The Cross

scholarly journals Tail Risk and the Cross-Section of Mutual Fund Expected Returns

2018 ◽  
Vol 54 (1) ◽  
pp. 425-447 ◽  
Author(s):  
Nikolaos Karagiannis ◽  
Konstantinos Tolikas
Keyword(s):  
Risk Factors ◽  
Cross Section ◽  
Risk Premium ◽  
Mutual Fund ◽  
Market Risk ◽  
Expected Returns ◽  
Adequate Explanation ◽  
Tail Risk ◽  
Management Fees ◽  
The Cross

We test for the presence of a tail risk premium in the cross-section of mutual fund returns and find that the top tail risk quintile of funds outperforms the bottom by 4.4% per annum. This premium is not simply a reward for market risk, nor do commonly used risk factors offer an adequate explanation. Our findings hold across double-sorted portfolios formed on tail risk and a number of fund characteristics. We also find that funds susceptible to tail risk tend to be small, young, have high management fees, and have managers who do not risk their own capital.

Systematic Tail Risk

2016 ◽  
Vol 51 (2) ◽  
pp. 685-705 ◽  
Author(s):  
Maarten R. C. van Oordt ◽  
Chen Zhou
Keyword(s):  
Cross Section ◽  
Risk Premium ◽  
Expected Returns ◽  
Tail Risk ◽  
Future Performance ◽  
The Future ◽  
The Cross

AbstractWe test for the presence of a systematic tail risk premium in the cross section of expected returns by applying a measure of the sensitivity of assets to extreme market downturns, the tail beta. Empirically, historical tail betas help predict the future performance of stocks in extreme market downturns. During a market crash, stocks with historically high tail betas suffer losses that are approximately 2 to 3 times larger than their low-tail-beta counterparts. However, we find no evidence of a premium associated with tail betas. The theoretically additive and empirically persistent tail betas can help assess portfolio tail risks.

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