Journal of Financial and Quantitative Analysis Vol. 53 No. 4 2018
Asymmetry in Stock Comovements: An Entropy Approach
Abstract
We provide an entropy approach for measuring the asymmetric comovement between the return on a single asset and the market return. This approach yields a model-free test for stock return asymmetry, generalizing the correlation-based test proposed by Hong, Tu, and Zhou (2007). Based on this test, we find that asymmetry is much more pervasive than previously thought. Moreover, our approach also provides an entropy-based measure of downside asymmetric comovement. In the cross section of stock returns, we find an asymmetry premium: Higher downside asymmetric comovement with the market indicates higher expected returns.
- DOI
- 10.1017/s0022109018000340
- Volume
- 53
- Issue
- 4
- Pages
- 1479-1507
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref