Extreme Downside Liquidity Risk
Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2013
Author(s)
Abstract
We merge the literature on downside return risk with that on systematic liquidity risk and introduce the concept of extreme downside liquidity (EDL) risk. We show that the
cross-section of expected stock returns reflects a premium for EDL risk. Strong EDL risk stocks deliver a positive risk premium of more than 4% p.a. as compared to weak EDL risk stocks. The effect is more pronounced after the market crash of 1987. It is not driven by linear liquidity risk or by extreme downside return risk, and it cannot
be explained by other firm characteristics or other systematic risk factors.
cross-section of expected stock returns reflects a premium for EDL risk. Strong EDL risk stocks deliver a positive risk premium of more than 4% p.a. as compared to weak EDL risk stocks. The effect is more pronounced after the market crash of 1987. It is not driven by linear liquidity risk or by extreme downside return risk, and it cannot
be explained by other firm characteristics or other systematic risk factors.
Language
English
Keywords
Asset Pricing
Crash Aversion
Downside Risk
Liquidity Risk
Tail Risk
HSG Classification
contribution to scientific community
Refereed
No
Publisher
SoF - HSG
Publisher place
St. Gallen
Number
2013/26
Subject(s)
Eprints ID
229266
File(s)![Thumbnail Image]()
Loading...
open.access
Name
13_26_Weigert et al_Extreme Downside Liquidity Risk.pdf
Size
785.02 KB
Format
Adobe PDF
Checksum (MD5)
2ce17495b2a197584cde1109a8c3452d