Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications

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Journal Title
Journal ISSN
Volume Title
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
Date
2020-06
Major/Subject
Mcode
Degree programme
Language
en
Pages
1-31
Series
JOURNAL OF BANKING AND FINANCE, Volume 115
Abstract
We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is lowest when market liquidity is lowest.
Description
Keywords
Asset pricing, Crash aversion, Downside risk, Liquidity risk, Tail risk
Other note
Citation
Ruenzi, S, Ungeheuer, M & Weigert, F 2020, ' Joint Extreme events in equity returns and liquidity and their cross-sectional pricing implications ', JOURNAL OF BANKING AND FINANCE, vol. 115, 105809, pp. 1-31 . https://doi.org/10.1016/j.jbankfin.2020.105809