Characterizing the Asymmetric Dependence Premium. (28th June 2016)

• Record Type: Journal Article
• Authors: Alcock, Jamie; Hatherley, Anthony
• Is Part Of: Review of finance. Volume 21:Number 4(2017)
• Page Start: 1701
• Page End: 1737
• Publication Date: 2016-06-28
• Subjects: G12; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfw022
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: We examine the price of asymmetric dependence (AD) in the cross section of US equities. Using a β -invariant AD metric, we demonstrate that the return premium for AD is approximately 47% of the premium for β . The premium for lower-tail AD is equivalent to 26% of the market risk premium and has been relatively constant through time. The discount associated with upper-tail AD is 29% of the market risk premium and has been increasing markedly in recent years. Our findings have substantial implications for the cost of capital, investor expectations, portfolio management, and performance assessment.