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SAMMS014.pdf

Article Title : An Empirical Study on the Impact of Left-Tail Risk on Stock Returns
Author(s) : Bingying Dai, Yucan Liu
Corresponding Author : Bingying Dai
Keywords : Left-tail risk; Stock Return; A Share Market.
PDF : http://download.BCPub.org/proceedings/2021/SAMMS2021/SAMMS014.pdf
Abstract

This paper uses the Shanghai and Shenzhen A shares from 2007.1.1-2020.12.31 as the research sample, constructing the left-tail risk indicator with the daily return rate of individual stocks. We use grouping statistical analysis and cross-sectional regression analysis to study the impact of left-tail risk on stock returns. The statistical results show that: the higher left-risk stocks generally show the characteristics of higher idiosyncratic volatility, higher market Beta, higher lottery demand and lower market capitalization. At the same time, long the 20% stocks with the highest left-tail risk and short the 20% stock portfolios with the lowest left-tail risk can obtain excess returns, and it is not affected by common stock pricing factors. Judging from the results of this paper, left-tail risk has a partial pricing effect on stock returns. Based on this, analyzing the impact of left-tail risk on stock returns is of great significance for improving and expanding existing capital pricing theories, as well as for investors to face up to price deviations and make more rational decisions.

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