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Capital Asset Pricing Models and Performance Measures in the Downside Risk Framework

Author

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  • Chokri Mamoghli

    (Chokri Mamoghli, Professor of Finance, Higher Institute of Management of Tunis, Tunisia.)

  • Sami Daboussi

    (Sami Daboussi (corresponding author), Assistant of Finance, Faculty of Law, Economics and Management of Jendouba, Tunisia. E-mail: daboussi_sami@yahoo.fr)

Abstract

The purpose of this article is twofold. First, we present the capital asset pricing models and the performance measures in the downside risk framework as an alternative to traditional CAPM and to traditional performance measures, respectively. Second, we propose two new performance measures in the downside risk framework. The empirical investigation based on Morgan Stanley Capital Indices (MSCI) database of emerging markets shows that the capital asset pricing models in the downside risk framework, especially the D-CAPM, describe better the valuation of assets. The results obtained also support the Sortino ratio, the upside potential ratio and Omega measure over Sharpe ratio. Similarly, the results support our two performance measures over Treynor Index and the Jensen alpha.

Suggested Citation

  • Chokri Mamoghli & Sami Daboussi, 2010. "Capital Asset Pricing Models and Performance Measures in the Downside Risk Framework," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 95-130, August.
    • Handle: RePEc:sae:emffin:v:9:y:2010:i:2:p:95-130
    DOI: 10.1177/097265271000900201
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    References listed on IDEAS

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    4. Estrada, Javier, 2007. "Mean-semivariance behavior: Downside risk and capital asset pricing," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 169-185.
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    6. Javier Estrada, 2006. "Downside Risk in Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(1), pages 117-125, March.
    7. Harlow, W. V. & Rao, Ramesh K. S., 1989. "Asset Pricing in a Generalized Mean-Lower Partial Moment Framework: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(3), pages 285-311, September.
    8. Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Capital market equilibrium in a mean-lower partial moment framework," Journal of Financial Economics, Elsevier, vol. 5(2), pages 189-200, November.
    9. Hogan, William W. & Warren, James M., 1974. "Toward the Development of an Equilibrium Capital-Market Model Based on Semivariance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(1), pages 1-11, January.
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    Cited by:

    1. Ali, Heba, 2019. "Does downside risk matter more in asset pricing? Evidence from China," Emerging Markets Review, Elsevier, vol. 39(C), pages 154-174.

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    More about this item

    Keywords

    JEL Classification: G12; Adjusted Jensen alpha; Adjusted Treynor Index; asymmetric returns; downside risk; D-CAPM; MLPM model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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