PT  - JOURNAL ARTICLE
AU  - B. Korcan Ak
AU  - Steven Rossi
AU  - Richard Sloan
AU  - Scott Tracy
TI  - Navigating Stock Price Crashes
AID  - 10.3905/jpm.2016.42.4.028
DP  - 2016 May 31
TA  - The Journal of Portfolio Management
PG  - 28--37
VI  - 42
IP  - 4
4099  - https://pm-research.com/content/42/4/28.short
4100  - https://pm-research.com/content/42/4/28.full
AB  - Individual equity securities are prone to large and abrupt stock price drops. In this article, the authors provide a framework for measuring, forecasting, and avoiding such stock price crashes. First, the authors identify the events that most frequently cause stock prices to crash, and then they construct a parsimonious model for forecasting stock price crashes. Finally, they examine how positioning a portfolio to reduce exposure to stocks with high crash risk can improve investment performance. This article provides a framework that should help investors construct equity portfolios with fewer stock price crashes, higher returns, and lower volatility.TOPICS: Financial crises and financial market history, risk management, portfolio management/multi-asset allocation