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Multivariate crash risk in China

Author

Listed:
  • Qiao, Tongshuai
  • Zhao, Yang
  • Han, Liyan
  • Li, Donghui

Abstract

This study examines the pricing of multivariate crash risk (MCRASH) in the Chinese stock market. Our findings indicate a significantly positive influence of MCRASH on the cross-section of future stock returns, with the MCRASH premium being notably higher in China than in the US. A plausible explanation for China's higher MCRASH premium is that Chinese stocks may experience greater loss magnitudes in left-tail events, leading investors to demand higher expected returns as compensation for bearing a unit of MCRASH. Additionally, the return effect of MCRASH is found to be significantly stronger for stocks of non-state-owned enterprises and those with lower media coverage. Finally, we construct a four-factor model comprising market, size, value, and MCRASH factors, which demonstrates superior explanatory power compared with the CH3 and CH4 models proposed in the literature.

Suggested Citation

  • Qiao, Tongshuai & Zhao, Yang & Han, Liyan & Li, Donghui, 2025. "Multivariate crash risk in China," Journal of Banking & Finance, Elsevier, vol. 171(C).
    • Handle: RePEc:eee:jbfina:v:171:y:2025:i:c:s0378426624002796
    DOI: 10.1016/j.jbankfin.2024.107365
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