Stock market tail risk, tail risk premia, and return predictability

Abstract

In this study, we use the S&P 500 options prices to derive various tail risk indexes. We then decompose the option‐implied tail risk indexes into the conditional tail risk of stock returns and equity tail risk premia. We examine the predictive power of the conditional tail risks and equity tail risk premia for various stock portfolio returns. The results demonstrate that the tail risk indicators possess additional predictive power for stock returns in the presence of extant risk indicators and other return predictor variables.

Asymmetric Fractal Characteristics and Market Efficiency Analysis of Style Stock Indices

“…This approach is seen as an extension of MFDFA, which is advanced in its ability to detect the presence of asymmetric multifractal characteristics in complex signal sequences. Correspondingly, many scholars have also confirmed the existence of asymmetric effects in the capital market [ 41 ]. Their research results show that the degree of volatility under different trends is different, and the degree of market volatility in a downtrend is often greater than that in an uptrend [ 42 , 43 ].…”