Semester
Fall
Date of Graduation
2021
Document Type
Dissertation
Degree Type
PhD
College
Chambers College of Business and Economics
Department
Finance
Committee Chair
K. Victor Chow
Committee Co-Chair
Naomi Boyd
Committee Member
Naomi Boyd
Committee Member
Alexander Kurov
Committee Member
Ann Marie Hibbert
Committee Member
Feng Yao
Abstract
The dissertation primarily focuses on asymmetry risk and its role in asset pricing. Asymmetry risk is a crucial component of systematic risk. However, it does not attract much attention, probably because of the misconception that it is similar to other asymmetry measures (e.g., skewness). Chapter 1 defines the asymmetry risk. The risk indifference curve (RIC) predicts two asymmetry premiums in the return distribution rather than one in the downside. I also derive the risk-neutral measure of asymmetry risk.
Chapter 2 empirically investigates the asymmetry beta's return predictability and tail risk hedging ability. Consistent with the risk indifference curve, the asymmetry beta exhibits significant explanation and prediction power for equity risk premiums of US stocks. In addition, low asymmetry beta stocks provide a more effective hedge against crashing markets.
Chapter 3 develops the implied market beta based on the risk-neutral measure of the asymmetry risk. The implied market beta is a superior measure of ex-ante beta in that it possesses significant return predictability and hedging ability. The investible option-implied market portfolio built on the implied market beta outperforms the value-weighted market portfolio with better risk-adjusted performance and less downside risk.
Overall, the asymmetry risk is a non-negligible systematic risk factor for the market index and individual stocks in physical probability and risk-neutral spaces: the asymmetry beta and AVIX2 own strong return predictability and powerful hedging ability in crashing markets. These results are robust to the risk factors documented in the previous literature.
Recommended Citation
Gu, Jiahao, "Asymmetry Risk And Asset Pricing" (2021). Graduate Theses, Dissertations, and Problem Reports. 10292.
https://researchrepository.wvu.edu/etd/10292