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Semivariance decomposition of country-level returns

  • Beach, Steven L.

A methodology for decomposing the below-mean semivariance into systematic and unsystematic components is introduced. The decomposition of variance and semivariance of asset returns is presented for forty-four country-level indexes. The proportion of risk explained for country-level returns in the Downside CAPM framework is higher than in the CAPM framework. On average for all markets, global systematic risk, as a proportion of total risk, is 42% in the CAPM and 56% in the Downside CAPM. A strong role for semivariance and downside beta is found in explaining the cross-section of country returns. Although skew is highly correlated to semivariance, no cross-sectional confirmation of the role of skew as a priced risk or in explaining the downside risk is identified.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 20 (2011)
Issue (Month): 4 (October)
Pages: 607-623

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Handle: RePEc:eee:reveco:v:20:y:2011:i:4:p:607-623
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