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Journal of Banking & Finance Vol. 171 2025

Multivariate crash risk in China

Tongshuai Qiao1; Yang Zhao2; Liyan Han3,4; Donghui Li5

1 University of Science and Technology Beijing · 2 Central University of Finance and Economics · 3 Beijing Institute of Mathematical Sciences and Applications · 4 Beihang University · 5 Shenzhen University

Abstract

This study examines the pricing of multivariate crash risk (MCRASH) in the Chinese stock market. Our findings indicate a significantly positive influence of MCRASH on the cross-section of future stock returns, with the MCRASH premium being notably higher in China than in the US. A plausible explanation for China's higher MCRASH premium is that Chinese stocks may experience greater loss magnitudes in left-tail events, leading investors to demand higher expected returns as compensation for bearing a unit of MCRASH. Additionally, the return effect of MCRASH is found to be significantly stronger for stocks of non-state-owned enterprises and those with lower media coverage. Finally, we construct a four-factor model comprising market, size, value, and MCRASH factors, which demonstrates superior explanatory power compared with the CH3 and CH4 models proposed in the literature.

DOI
10.1016/j.jbankfin.2024.107365
Volume
171
Pages
107365
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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