Sorting out Downside Beta
AbstractDownside risk, when properly defined and estimated, helps to explain the cross-section of US stock returns. Sorting stocks by a proper estimate of downside market beta leads to a substantially larger cross-sectional spread in average returns than sorting on regular market beta. This result arises despite the fact that downside beta is based on fewer return observations and therefore is more difficult to estimate and predict. The explanatory power of downside risk remains after controlling for other stock characteristics, including firm-level size, value and momentum.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2009-006-F&A.
Date of creation: 18 Feb 2009
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asset pricing; downside risk; lower partial moments; semi-variance; beta;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-BEC-2009-02-28 (Business Economics)
- NEP-RMG-2009-02-28 (Risk Management)
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- Bloys van Treslong, A. van & Huisman, R., 2009. "A Comment on: Storage and the Electricity Forward Premium," Research Paper ERS-2009-042-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- Cumova, Denisa & Nawrocki, David, 2011. "A symmetric LPM model for heuristic mean-semivariance analysis," Journal of Economics and Business, Elsevier, vol. 63(3), pages 217-236, May.
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