Publicação
The impact of equity tail risk on European markets
| Resumo: | I apply a dynamic equity tail risk variable to equity and government bond returns in Europe, understanding how investors react upon an increase in market uncertainty, departing from a risk aversion premise. I show that tail risk has predictive power for market returns, but less significantly than in the US. Nevertheless, the cross-sectional analysis provides evidence that investors demand a higher return from stocks that co-move more with tail risk, and the government bond analysis demonstrates that the yield-to maturity of safer bonds decreases upon an increase in equity tail risk, a sign of investors’ flight to safety, in uncertain times. |
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| Autores principais: | Conduto, Miguel dos Prazeres |
| Assunto: | Tail risk Risk aversion Equity markets Government bonds |
| Ano: | 2023 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade Nova de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório Institucional da UNL |
| Resumo: | I apply a dynamic equity tail risk variable to equity and government bond returns in Europe, understanding how investors react upon an increase in market uncertainty, departing from a risk aversion premise. I show that tail risk has predictive power for market returns, but less significantly than in the US. Nevertheless, the cross-sectional analysis provides evidence that investors demand a higher return from stocks that co-move more with tail risk, and the government bond analysis demonstrates that the yield-to maturity of safer bonds decreases upon an increase in equity tail risk, a sign of investors’ flight to safety, in uncertain times. |
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