Review of Finance Vol. 21 No. 4 2017
Characterizing the Asymmetric Dependence Premium
Abstract
We examine the price of asymmetric dependence (AD) in the cross section of US equities. Using a β-invariant AD metric, we demonstrate that the return premium for AD is approximately 47% of the premium for β. The premium for lower-tail AD is equivalent to 26% of the market risk premium and has been relatively constant through time. The discount associated with upper-tail AD is 29% of the market risk premium and has been increasing markedly in recent years. Our findings have substantial implications for the cost of capital, investor expectations, portfolio management, and performance assessment.
- DOI
- 10.1093/rof/rfw022
- Volume
- 21
- Issue
- 4
- Pages
- 1701-1737
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref