A1162
Title: The granular origins of tail dispersion risk
Authors: Yi Ding - University of Macau (China) [presenting]
Torben Andersen - Northwestern University (United States)
Viktor Todorov - Northwestern University (United States)
Abstract: Tail risk is studied in the cross-section of asset prices at high frequencies. The tail behavior of the cross-section depends on whether a systematic jump event occurred. If so, the cross-sectional return tail is governed by assets' exposures to the systematic event while, otherwise, it is determined by idiosyncratic jumps. An estimator for the tail shape of the cross-sectional distribution displays distinct properties with and without systematic jumps. It is shown empirically that shocks to the cross-sectional tail shape are a source of priced risk: fat idiosyncratic tails are favored by investors, while fat-tailed exposures to systematic jumps are disliked.
