Journal of Financial Economics Vol. 145 No. 1 2022

Multivariate crash risk

Fousseni Chabi-Yo¹; Markus Huggenberger²; Florian Weigert³

¹ University of Massachusetts Amherst · ² University of Mannheim · ³ University of Neuchâtel

Abstract

This paper investigates whether multivariate crash risk (MCRASH), defined as exposure to extreme realizations of multiple systematic factors, is priced in the cross-section of expected stock returns. We derive an extended linear model with a positive premium for MCRASH, and we empirically confirm that stocks with high MCRASH earn significantly higher future returns than stocks with low MCRASH. The premium is not explained by linear factor exposures, alternative downside risk measures, or stock characteristics. Extending market-based definitions of crash risk to other well-established factors helps to determine the cross-section of expected stock returns without further expanding the factor zoo.

DOI

10.1016/j.jfineco.2021.07.016

Volume

145

Issue

1

Pages

129-153

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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