| Commonality in Tail Risk Premia around the World |
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Kuan-Hui Lee1, Shu-Feng Wang2 |
1Professor, Seoul National University
2Associate Professor, Ajou University |
| 꼬리 위험프리미엄의 동조화 현상에 대한 연구: 전세계 주식시장을 중심으로 |
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이관휘1, 왕수봉2 |
1서울대학교 교수
2아주대학교 부교수 |
Correspondence:
Shu-Feng Wang, Tel: +82-31-219-2913,
Email: sfwang@ajou.ac.kr
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Received: 28 June 2023 • Revised: 20 September 2023 • Accepted: 20 September 2023 |
| Abstract |
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This study examines tail risk premia for 44 countries from 1990 to 2015 and provides evidence on the existence of common and systematic components in the variation of tail risk premia across countries. Specifically, we found that individual countries’ tail risk premia significantly comove with U.S., regional, and global tail risk premia. The first five principal components explain all variation in the premia, with the first principal component alone explaining over 30% of the variation. The comovement, or commonality, is stronger for developed market countries and more open countries. We also provide evidence that premia are affected by the U.S. economic environment and global stock market volatility, leading to a common variation in tail risk premia around the world. |
| Key Words:
Tail Risk, Tail Risk Premium, Commonality, Comovement, International Stock Market |
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