%0 Journal Article
%T The Effect of Left Tail Risk on Expected Excess Returns and Its Consequences on the Persistence of Left Tail Returns
%J Financial Research Journal
%I University of Tehran
%Z 1024-8153
%A Shahrzadi, Mahshid
%A Foroghi, Dariush
%A Amiri, Hadi
%D 2020
%\ 02/20/2020
%V 21
%N 4
%P 593-611
%! The Effect of Left Tail Risk on Expected Excess Returns and Its Consequences on the Persistence of Left Tail Returns
%K Left tail risk
%K Expected excess returns
%K Value at Risk
%K Expected shortfall
%R 10.22059/frj.2019.282102.1006873
%X Objective: Left-tailed risk illustrates the probability of unfavorable events that could occur in a range wider than three variances of the distribution function. Although such events have a very low occurrence probability, they would cause significant losses in case of occurrence. This research aims at examining the cross-sectional effects of left-tailed risk on expected excess returns. The present research also examines the probability of the persistence of left-tiled risk in the future.Methods: In this research two proxies of value at risk and expected shortfall are used to measure left-tailed risk. For this purpose, a sample of 120 companies listed in the Tehran stock market in the period of the years 2010-2017 have been selected. Research hypotheses were examined with the use of Fama and Macbeth regression. Transition matrix was used to determine the probability of left-tailed risk persistence in the future.Results: According to the findings of the research, left-tailed risk has a significant and negative effect on the expected excess returns. The findings also suggested that the negative returns of the left tail will have a persistence probability of over 50% in the future.Conclusion: The findings of the present research illustrate a new anomaly in the financial area, which is the negative effect of left-tail risk on the expected excess returns, and persists in the future.
%U https://jfr.ut.ac.ir/article_75557_24d8ec28afe42e1fd2d61a1691e85fe4.pdf