Is systematic downside beta risk really priced? Evidence in emerging market data
AbstractSeveral studies advocating safety first as a major concern to investors propose downside beta risk as an alternative to the traditional systematic risk-beta. Downside measures are concerned with a subset of the data and therefore the results in the studies that consider the downside beta only may be biased. This study addresses this issue by including downside co-skewness risk in addition to the downside beta risk in the pricing model. In a sample of 27 emerging markets two-stage rolling regression analysis fails to support pricing models with downside risk measures. In a cross-sectional analysis inclusion of downside co-skewness improves model fit. When considered together, downside beta is potential and downside co-skewness is a risk to the rational investor. Even though our results are inconclusive the evidence strongly suggests a need for further investigation of co-skewness risk in pricing models that adopt a downside risk framework.
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Bibliographic InfoPaper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 11/05.
Length: 26 pages
Date of creation: May 2005
Date of revision:
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Postal: PO Box 11E, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/depts/ebs/
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Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-29 (All new papers)
- NEP-CFN-2005-05-29 (Corporate Finance)
- NEP-FIN-2005-05-29 (Finance)
- NEP-RMG-2005-05-29 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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NBER Working Papers
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