Abstract
Atilgan, Bali, Demirtas and Gunaydin (2020) find a significantly negative cross-sectional relation between left-tail risk and future returns on individual stock trading in the US and international developed countries. We explore this left-tail risk anomaly in the Chinese stock market, and find an economically and statistically significant relation between the risk and future returns. Stocks in China are more sensitive to left-tail risk than in the US with a higher risk exposure. This paper complements new evidence that higher left-tail risk is also associated with lower expected returns in China.
•Left-tail momentum proposed by Atilgan et al. (2020) is investigated in China.•Left-tail risk is significantly negatively correlated with future returns in China.•Return difference between extreme left-tail risk deciles is roughly 10% per year.•Stock returns in China exhibit a higher left-tail risk exposure than in the US.•The results are robust when adding size, value and various other factors.