CMStatistics 2017: Start Registration
View Submission - CFE
A1820
Title: Crash risk in individual stocks Authors:  Paola Pederzoli - University of Geneva Swiss Finance Institute (Switzerland) [presenting]
Abstract: Crash risk in individual stocks is studied using a large cross-section of options and find evidence of a significant positive skewness risk premium since the financial crisis of 2008/2009. Using a novel trading strategy in form of a skewness swap, we document that the average monthly return of the skewness swap is 50\% with an annualised Sharpe ratio of 1.16 and that these returns remain robust when taking into account transaction costs. Moreover, we find that only the idiosyncratic risk premium increases after the crisis while the coskewness risk premium remains at pre-crisis levels. Finally, we theoretically and empirically link the skewness risk premium to short-sell constraints in a framework where investors face asymmetric information.