The Price of Asymmetric Dependence: Evidence from Australian Equities
35 Pages Posted: 21 Aug 2015 Last revised: 2 Sep 2015
Date Written: August 24, 2015
Abstract
Australian listed equity returns exhibit asymmetric dependence. This asymmetric dependence is priced in the cross section independently of linear market (β) risk. In our sample, average levels of lower-tail dependence attract a premium of 6.3% and average levels of upper-tail dependence yield a discount of 6.7%. This compares with 5.2% for the β risk premium. The degree of upper-tail and lower-tail dependence has been increasing significantly over the past fifteen years. Whilst the price of lower-tail dependence has remained relatively stable, the price of upper-tail dependence has been also increasing over the past fifteen years.
Keywords: Asymmetric dependence, asset pricing, tail risk, downside risk, β
JEL Classification: G12
Suggested Citation: Suggested Citation