The Price of Asymmetric Dependence: Evidence from Australian Equities

35 Pages Posted: 21 Aug 2015 Last revised: 2 Sep 2015

See all articles by Jamie Alcock

Jamie Alcock

University of Oxford

Petra Sinagl

University of Iowa - Department of Finance

Anthony Hatherley

University of Queensland - Business School; Citigroup, Inc. - Citigroup - Sydney

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

Alcock, Jamie and Sinagl, Petra and Hatherley, Anthony and Hatherley, Anthony, The Price of Asymmetric Dependence: Evidence from Australian Equities (August 24, 2015). Available at SSRN: https://ssrn.com/abstract=2647904

Jamie Alcock

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Petra Sinagl (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

HOME PAGE: http://andrlikova.com

Anthony Hatherley

Citigroup, Inc. - Citigroup - Sydney ( email )

Level 40
Citigroup Centre 2 Park Street
Sydney NSW 2000
Australia

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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