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The impact of equity tail risk on European markets
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Orientador(es)
Resumo(s)
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.
Descrição
Palavras-chave
Tail risk Risk aversion Equity markets Government bonds