Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications

Stefan Ruenzi; Michael Ungeheuer; Florian Weigert

doi:10.1016/j.jbankfin.2020.105809

Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications

Stefan Ruenzi, Michael Ungeheuer, Florian Weigert^*

^*Corresponding author for this work

Department of Finance

Research output: Contribution to journal › Article › Scientific › peer-review

1 Citation (Scopus)

Abstract

We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is lowest when market liquidity is lowest.

Original language	English
Article number	105809
Pages (from-to)	1-31
Number of pages	31
Journal	JOURNAL OF BANKING AND FINANCE
Volume	115
Early online date	19 Mar 2020
DOIs	https://doi.org/10.1016/j.jbankfin.2020.105809
Publication status	Published - Jun 2020
MoE publication type	A1 Journal article-refereed

Keywords

Asset pricing
Crash aversion
Downside risk
Liquidity risk
Tail risk

Access to Document

10.1016/j.jbankfin.2020.105809

Cite this

@article{ac856856f2ad40f299a2b7c4568dd4c0,

title = "Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications",

abstract = "We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is lowest when market liquidity is lowest.",

keywords = "Asset pricing, Crash aversion, Downside risk, Liquidity risk, Tail risk",

author = "Stefan Ruenzi and Michael Ungeheuer and Florian Weigert",

year = "2020",

month = jun,

doi = "10.1016/j.jbankfin.2020.105809",

language = "English",

volume = "115",

pages = "1--31",

journal = "JOURNAL OF BANKING AND FINANCE",

issn = "0378-4266",

}

TY - JOUR

T1 - Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications

AU - Ruenzi, Stefan

AU - Ungeheuer, Michael

AU - Weigert, Florian

PY - 2020/6

Y1 - 2020/6

N2 - We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is lowest when market liquidity is lowest.

AB - We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is lowest when market liquidity is lowest.

KW - Asset pricing

KW - Crash aversion

KW - Downside risk

KW - Liquidity risk

KW - Tail risk

UR - http://www.scopus.com/inward/record.url?scp=85083346627&partnerID=8YFLogxK

U2 - 10.1016/j.jbankfin.2020.105809

DO - 10.1016/j.jbankfin.2020.105809

M3 - Article

AN - SCOPUS:85083346627

VL - 115

SP - 1

EP - 31

JO - JOURNAL OF BANKING AND FINANCE

JF - JOURNAL OF BANKING AND FINANCE

SN - 0378-4266

M1 - 105809

ER -

Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications

Abstract

Keywords

Access to Document

Other files and links

Embargoed Document

Fingerprint

Cite this