Asymmetry in Stock Comovements: An Entropy Approach
Year: 2018
Type: article
Abstract: We provide an entropy approach for measuring asymmetric comovement between the return on a single asset and the market return. This approach yields a model-free test for stock return asymmetry, generalizing the correlation-based test proposed by Hong, Tu, and Zhou (2007). Based on this test, we find that asymmetry is much more pervasive than previously thought. Moreover, our approach also provides an entropy-based measure of downside asymmetric comovement. In the cross-section of stock returns, we find an asymmetry premium: high downside asymmetric comovement with the market indicates higher expected returns.
Authors: Lei Jiang, Ke Wu, Guofu Zhou
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3124386509