Extreme Downside Liquidity Risk

Item Type Monograph (Working Paper)
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.

Authors Ruenzi, Stefan; Ungeheuer, Michael & Weigert, Florian
Language English
Keywords Asset Pricing, Crash Aversion, Downside Risk, Liquidity Risk, Tail Risk
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 2013
Publisher SoF - HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2013/26
Depositing User PD Dr. Florian Weigert
Date Deposited 11 Feb 2014 13:43
Last Modified 23 Aug 2016 11:18
URI: https://www.alexandria.unisg.ch/publications/229266

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Citation

Ruenzi, Stefan; Ungeheuer, Michael & Weigert, Florian: Extreme Downside Liquidity Risk. School of Finance Working Paper Series, 2013, 2013/26.

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https://www.alexandria.unisg.ch/id/eprint/229266
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