Testing for Multi-Asset Systemic Tail Risk

We develop a test to measure multi-asset (systemic) tail risk in the cross-section of asset returns. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we estimate time-varying jump intensities and test for multi-asset tail risk around Fed policy announcements. The magnitude of the tail risk induced by Fed policy announcements varies over the business cycle, peaks during the global financial crisis, and remains high during phases of unconventional monetary policy. While most FOMC announcements generate systemic left-tail risk, there is no evidence that macro announcements have a similar effect. We construct a Fed-driven systemic tail risk (STR) indicator that helps explain the pre-FOMC announcement drift and significantly explains variance risk premia, particularly for the meetings without press conferences. Our measure complements existing option-based tail risk measures in identifying tail events.