Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/146170
Authors: 
Chen, Cathy Yi-Hsuan
Chiang, Thomas C.
Härdle, Wolfgang Karl
Year of Publication: 
2016
Series/Report no.: 
SFB 649 Discussion Paper 2016-001
Abstract: 
This paper presents presents presents a fractionally cointegrated vector autoregression (FCVAR) (FCVAR) (FCVAR) (FCVAR) model to examine to examine to examine to examine to examine to examine to examine various relations between stock returns and downside risk. Evidence from major advanced markets markets markets markets supports the supports the notion that notion that notion that downside risk measured by value value value-at -risk ( risk (VaRVaRVaR) has significant information content content that reflects that reflects that reflects that reflects that reflects lagged long-run variance and higher moments of risk for for predict redict ing stock returns. stock returns. stock returns. stock returns. The e The e vidence vidence vidence supports the positive tradeoff hypothesis and and the leverage effect leverage effect leverage in the long in the long in the long run and and for markets in the short run. We find that US downside risk accounts for 54.36% of price discovery, whereas the whereas the whereas the whereas the own effect from own effect from the country itself only 27.06%.
Subjects: 
downside risk
value-at-risk
long memory
fractional integration
risk-return
JEL: 
G11
G12
G15
C24
F30
Document Type: 
Working Paper

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