IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp1459.html
   My bibliography  Save this paper

Asymmetric Beta Comovement and Systematic Downside Risk

Author

Listed:
  • Eric JONDEAU

    (University of Lausanne and Swiss Finance Institute)

  • Qunzi ZHANG

    (Shandong University)

Abstract

In this paper, we document evidence that downside betas tend to comove more than upside betas during a financial crisis, but upside betas tend to comove more than the downside betas during financial booms. We find that the asymmetry between Downside-Beta Comovement and Upside-Beta Comovement is the main driving force for market level skewness. An indicator called "Systematic Downside Risk" (SDR) is defined to characterize this asymmetry in the comovement of betas. This indicator negatively predicts future market returns. The SDR effectively forecasts future monthly stock market movements with an out-of-sample R-square above 2.27% relative to a strategy based on historical mean. An investor who timed the market using SDR would have obtained a Sharpe ratio gain of 0.206.

Suggested Citation

  • Eric JONDEAU & Qunzi ZHANG, 2014. "Asymmetric Beta Comovement and Systematic Downside Risk," Swiss Finance Institute Research Paper Series 14-59, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1459
    as

    Download full text from publisher

    File URL: http://ssrn.com/abstract=2511327
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Systematic Risk; Skewness; Predictability; Trading Strategies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:chf:rpseri:rp1459. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    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.