This paper documents a significantly negative cross-sectional relation between left-tail risk and future returns on individual stocks trading in the U.S. and international countries. We provide a behavioral explanation to this anomaly based on the idea that investors underestimate the...

This paper reexamines the relation between various downside risk measures and future equity returns in a global context that spans 26 developed markets. We find that there is no significantly positive relation between systematic downside risk and the cross-section of equity returns, and in fact,...

Extant research provides evidence for financial innovation’s contribution to market efficiency by documenting that hedge funds which bet on positive earnings surprises manage their sector risk by shorting industry exchange-traded funds (ETFs). We add to this literature by considering a...