In Search of Cushion? Crash Aversion and the Cross-Section of Expected Stock Returns Worldwide

Weigert, Florian

Document Type: Working paper
Year of publication: 2013
The title of a journal, publication series: Working papers on finance / University of St.Gallen, School of Finance Research Paper
Volume: 13/25
Place of publication: St. Gallen
Edition: Version March 2013
Publication language: English
Institution: Business School > Internat. Finanzierung (Ruenzi)
Subject: 330 Economics
Abstract: This paper examines whether investors receive a compensation for holding stocks with a strong sensitivity to extreme market downturns in a worldwide sample covering 40 different countries. I find that stocks with strong crash sensitivity earn higher average returns than stocks with weak crash sensitivity. The risk premium is particularly strong in countries that rank high on the individualism index developed by Hofstede (2001). My findings are consistent with the `cushion hypothesis' by Weber and Hsee (1998) and Hsee and Weber (1999): Crash sensitivity is only marginally compensated in socially-collectivist countries where an investor's social network serves as a cushion in the case of large financial losses. However, there exists a statistically and economically important premium in individualistic countries where investors personally bear the risk of large financial losses.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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