Browsing by Author "Stoja, Evarist"

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    Does Systematic Tail Risk Matter?
    (Elsevier, 2022-12-13) Stoja, Evarist; Polanski, Arnold; Pereverzin, Aleksandr; Nguyen, Linh H.
    Systematic tail risk is considered an important determinant of expected returns on risky assets. We examine its impact from two perspectives in a unified framework which originates from a simple asset pricing model. From the first perspective, systematic tail risk is proxied by a generalized tail dependence coefficient and is compensated with an economically sizeable and statistically significant premium. From the second perspective, systematic tail risk is proxied by the product of the same coefficient with a normalised tail risk measure and does not appear to earn a premium. We examine these contradictory findings and attempt to reconcile them. Evidence suggests that the components of our second systematic tail risk measure may be subject to common features. This finding may help explain the contradictory evidence in the literature.
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    ItemOpen Access
    Extreme downside risk and market turbulence
    (Taylor and Francis, 2019-06-10) Harris, Richard D. F.; Nguyen, Linh H.; Stoja, Evarist
    We investigate the dynamics of the relationship between returns and extreme downside risk in different states of the market by combining the framework of Bali, Demirtas, and Levy (2009) with a Markov switching mechanism. We show that the risk-return relationship identified by Bali, Demirtas, and Levy (2009) is highly significant in the low volatility state but disappears during periods of market turbulence. This is puzzling since it is during such periods that downside risk should be most prominent. We show that the absence of the risk-return relationship in the high volatility state is due to leverage and volatility feedback effects arising from increased persistence in volatility. To better filter out these effects, we propose a simple modification that yields a positive tail risk-return relationship in all states of market volatility.
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    Systematic Extreme Downside Risk
    (Elsevier, 2019-02-25) Harris, R.D.F.; Nguyen, Linh H.; Stoja, Evarist
    We propose new systematic tail risk measures constructed using two different approaches. The first is a nonparametric measure that captures the tendency of a stock to crash at the same time as the market, while the second is based on the sensitivity of stock returns to innovations in market crash risk. Both tail risk measures are associated with a significantly positive risk premium after controlling for other measures of downside risk, including downside beta, coskewness and cokurtosis. Using the new measures, we examine the relevance for investors of the tail risk premium over different horizons.