Year: 2025
Type: article
Abstract: ABSTRACT This study proposes a novel model‐free market crash index designed to capture time‐varying left‐tail risks, which can be replicated using option portfolios. We construct market volatility and crash indices utilising SSE 50 ETF option data, subsequently investigating the pricing mechanisms of market volatility and crash risks across the cross‐section of stock returns in the Chinese stock market. Our findings indicate that stocks with high exposure to market volatility and crash risk tend to have significantly lower average returns. Notably, the risk premia associated with these factors become more substantial when excluding state‐owned enterprises or small‐cap stocks.
Source: Accounting and Finance
DOI: 10.1111/acfi.70025
Authors: Aoran Zhang, Chunyang Zhou
Institution: Shanghai Jiao Tong University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4409150255