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Fragility, stress, and market returns

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  • Berger, Dave
  • Pukthuanthong, Kuntara

Abstract

We propose a novel risk measure that relates to subsequent negative conditional stock market returns. Our risk measure considers both the fragility and stress of the market. Fragility is measured by the Fragility Index developed by Berger and Pukthuanthong (2012) and market stress is based on several economic variables. Results show that incorporating both market stress and fragility improves the information content of a risk measure. Our risk measure relates to poor subsequent monthly market returns. We show the risk measure contains predictive information in a purely ex-ante specification.

Suggested Citation

  • Berger, Dave & Pukthuanthong, Kuntara, 2016. "Fragility, stress, and market returns," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 152-163.
    • Handle: RePEc:eee:jbfina:v:62:y:2016:i:c:p:152-163
    DOI: 10.1016/j.jbankfin.2015.11.003
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    More about this item

    Keywords

    Financial crises; Systemic risk; Market stress;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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