Talk by Dr Jamie Alcock
Title: The Price of Asymmetric Dependence
Abstract:
We examine the relative importance of asymmetric dependence (AD) and systematic risk
in the cross-section of US equities. Using a β-invariant AD metric, we demonstrate a
lower-tail dependence premium that is only 35% of the market risk premium, compared
with an upper-tail dependence discount that is 41% of the market risk premium. Lowertail
dependence displays a constant price between 1989-2009. Subsequently, we find that
return changes in US equities between 2007-2009 reflected changes in systematic risk
and upper-tail dependence. This suggests that both systematic risk and AD should be
managed in order to reduce the return impact of market downturns.
Key words: Asymmetric dependence, asset pricing, tail risk, downside risk, systematic
risk.
JEL: G12