IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v20y2011i4p607-623.html
   My bibliography  Save this article

Semivariance decomposition of country-level returns

Author

Listed:
  • Beach, Steven L.

Abstract

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.

Suggested Citation

  • Beach, Steven L., 2011. "Semivariance decomposition of country-level returns," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 607-623, October.
  • Handle: RePEc:eee:reveco:v:20:y:2011:i:4:p:607-623
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056011000189
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Estrada, Javier, 2002. "Systematic risk in emerging markets: the," Emerging Markets Review, Elsevier, vol. 3(4), pages 365-379, December.
    2. Woodward, George & Brooks, Robert, 2009. "Do realized betas exhibit up/down market tendencies?," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 511-519, June.
    3. Galagedera, Don U.A., 2007. "An alternative perspective on the relationship between downside beta and CAPM beta," Emerging Markets Review, Elsevier, vol. 8(1), pages 4-19, March.
    4. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-126, March.
    5. Andrew Ang & Joseph Chen & Yuhang Xing, 2006. "Downside Risk," The Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1191-1239.
      • Andrew Ang & Joseph Chen & Yuhang Xing, 2005. "Downside risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    6. Galagedera, Don U.A. & Brooks, Robert D., 2007. "Is co-skewness a better measure of risk in the downside than downside beta?: Evidence in emerging market data," Journal of Multinational Financial Management, Elsevier, vol. 17(3), pages 214-230, July.
    7. Hogan, William W. & Warren, James M., 1972. "Computation of the Efficient Boundary in the E-S Portfolio Selection Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(4), pages 1881-1896, September.
    8. Demirer, Riza & Lien, Donald, 2003. "Downside risk for short and long hedgers," International Review of Economics & Finance, Elsevier, vol. 12(1), pages 25-44.
    9. Shaun Bond & Stephen Satchell, 2002. "Statistical properties of the sample semi-variance," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(4), pages 219-239.
    10. Christian Pedersen & Stephen Satchell, 2002. "On the foundation of performance measures under asymmetric returns," Quantitative Finance, Taylor & Francis Journals, vol. 2(3), pages 217-223.
    11. Estrada, Javier, 2007. "Mean-semivariance behavior: Downside risk and capital asset pricing," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 169-185.
    12. Javier Estrada, 2004. "Mean-Semivariance Behaviour: An Alternative Behavioural Model," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(3), pages 231-248, December.
    13. Huang, Ho-Chuan (River), 2003. "Tests of regime-switching CAPM under price limits," International Review of Economics & Finance, Elsevier, vol. 12(3), pages 305-326.
    14. Stehle, Richard E, 1977. "An Empirical Test of the Alternative Hypotheses of National and International Pricing of Risky Assets," Journal of Finance, American Finance Association, vol. 32(2), pages 493-502, May.
    15. Hanqing Jin & Harry Markowitz & Xun Yu Zhou, 2006. "A Note On Semivariance," Mathematical Finance, Wiley Blackwell, vol. 16(1), pages 53-61, January.
    16. Grootveld, Henk & Hallerbach, Winfried, 1999. "Variance vs downside risk: Is there really that much difference?," European Journal of Operational Research, Elsevier, vol. 114(2), pages 304-319, April.
    17. Ang, James S. & Chua, Jess H., 1979. "Composite Measures for the Evaluation of Investment Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(2), pages 361-384, June.
    18. Hargis, Kent, 2000. "International cross-listing and stock market development in emerging economies," International Review of Economics & Finance, Elsevier, vol. 9(2), pages 101-122.
    19. Enrique Ballestero, 2005. "Mean-Semivariance Efficient Frontier: A Downside Risk Model for Portfolio Selection," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(1), pages 1-15.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sree Vinutha Venkataraman, 2023. "A remark on mean‐semivariance behaviour: Downside risk and capital asset pricing," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2683-2695, July.
    2. Tsai, Hsiu-Jung & Chen, Ming-Chi & Yang, Chih-Yuan, 2014. "A time-varying perspective on the CAPM and downside betas," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 440-454.
    3. Manuel Monge & Luis A. Gil-Alana, 2020. "The Lithium Industry and Analysis of the Beta Term Structure of Oil Companies," Risks, MDPI, vol. 8(4), pages 1-17, December.
    4. Richard T. Baillie & Fabio Calonaci & George Kapetanios, 2019. "Hierarchical Time Varying Estimation of a Multi Factor Asset Pricing Model," Working Papers 879, Queen Mary University of London, School of Economics and Finance.
    5. Lajos Horváth & William Pouliot & Shixuan Wang, 2017. "Detecting at-Most-m Changes in Linear Regression Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 38(4), pages 552-590, July.
    6. Philip A. Horvath & Amit K. Sinha, 2017. "Asymmetric reaction is rational behavior," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 160-179, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ayub, Usman & Shah, Syed Zulfiqar Ali & Abbas, Qaisar, 2015. "Robust analysis for downside risk in portfolio management for a volatile stock market," Economic Modelling, Elsevier, vol. 44(C), pages 86-96.
    2. 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.
    3. Ruili Sun & Tiefeng Ma & Shuangzhe Liu & Milind Sathye, 2019. "Improved Covariance Matrix Estimation for Portfolio Risk Measurement: A Review," JRFM, MDPI, vol. 12(1), pages 1-34, March.
    4. Tsai, Hsiu-Jung & Chen, Ming-Chi & Yang, Chih-Yuan, 2014. "A time-varying perspective on the CAPM and downside betas," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 440-454.
    5. Philip A. Horvath & Amit K. Sinha, 2017. "Asymmetric reaction is rational behavior," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 160-179, January.
    6. Cumova, Denisa & Nawrocki, David, 2014. "Portfolio optimization in an upside potential and downside risk framework," Journal of Economics and Business, Elsevier, vol. 71(C), pages 68-89.
    7. Ole E. Barndorff-Nielsen & Silja Kinnebrock & Neil Shephard, 2008. "Measuring downside risk - realised semivariance," OFRC Working Papers Series 2008fe01, Oxford Financial Research Centre.
    8. Houda Hafsa & Dorra Hmaied, 2012. "Are Downside Higher Order Co-Moments Priced? : Evidence From The French Market," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(1), pages 65-81.
    9. Neil Shephard & Silja Kinnebrock & Ole E. Barndorff-Neilsen, 2008. "Measuring downside risk - realised semivariance," Economics Series Working Papers 382, University of Oxford, Department of Economics.
    10. Lesław Markowski, 2015. "Conditional Volatility Exposures in Asset Pricing in the Downside and Classical Framework," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 7(1).
    11. Javier Estrada, 2009. "The Gain‐Loss Spread: A New and Intuitive Measure of Risk," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(4), pages 104-114, September.
    12. Anthonisz, Sean A., 2012. "Asset pricing with partial-moments," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2122-2135.
    13. Dipankar Mondal & N. Selvaraju, 2022. "Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(1), pages 225-248, March.
    14. Brogan, Anita J. & Stidham Jr., Shaler, 2008. "Non-separation in the mean-lower-partial-moment portfolio optimization problem," European Journal of Operational Research, Elsevier, vol. 184(2), pages 701-710, January.
    15. Anna Rutkowska-Ziarko & Lesław Markowski, 2022. "Accounting and Market Risk Measures of Polish Energy Companies," Energies, MDPI, vol. 15(6), pages 1-21, March.
    16. Duc Hong Vo, 2021. "Portfolio Optimization and Diversification in China: Policy Implications for Vietnam and Other Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(1), pages 223-238, January.
    17. Karma, Otto & Sander, Priit, 2006. "The impact of financial leverage on risk of equity measured by loss-oriented risk measures: An option pricing approach," European Journal of Operational Research, Elsevier, vol. 175(3), pages 1340-1356, December.
    18. Sebastian, Steffen P. & Steininger, Bertram I., 2021. "Real estate ETNs in strategic asset allocation," Working Paper Series 21/8, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    19. S S S Kumar, 2012. "The relevance of emerging markets in portfolio diversification: Analysis in a downside risk framework," Journal of Asset Management, Palgrave Macmillan, vol. 13(3), pages 162-169, June.
    20. Alles, Lakshman & Murray, Louis, 2013. "Rewards for downside risk in Asian markets," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2501-2509.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:20:y:2011:i:4:p:607-623. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.