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The impact of tail risk on stock market returns: the role of market sentiment

Chevaptrakul, Thanaset; Xu, Zhongxiang; Yao, Kai


Zhongxiang Xu

Kai Yao


We examine the return predictability of time-varying extreme-event risk at the different points on the return distribution using quantile regression. We find evidence of strong predictive power at the lower quantiles for forecast horizons of up to one year. At the higher quantiles, however, our results show no association between tail risk and the excess stock market returns. Taken together, the evidence explains the abnormally large equity premium, observed during periods of sharp falls in stock prices when market sentiment is bearish.


Chevaptrakul, T., Xu, Z., & Yao, K. (2019). The impact of tail risk on stock market returns: the role of market sentiment. International Review of Economics and Finance, 59, 289-301.

Journal Article Type Article
Acceptance Date Sep 21, 2018
Online Publication Date Sep 27, 2018
Publication Date 2019-01
Deposit Date Oct 17, 2018
Publicly Available Date Sep 28, 2019
Journal International Review of Economics & Finance
Print ISSN 1059-0560
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 59
Pages 289-301
Keywords Quantile regression; Stock markets; Return predictability; Asymmetry
Public URL
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Additional Information This article is maintained by: Elsevier; Article Title: The impact of tail risk on stock market returns: The role of market sentiment; Journal Title: International Review of Economics & Finance; CrossRef DOI link to publisher maintained version:; Content Type: article; Copyright: Crown Copyright © 2018 Published by Elsevier Inc. All rights reserved.


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