Is Systematic Downside Beta Risk Really Priced? Evidence in Emerging Market Data
39 Pages Posted: 30 Aug 2005
Date Written: September 2005
Abstract
Several 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 fail 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.
Keywords: Beta, downside risk, emerging markets
JEL Classification: G12, G15
Suggested Citation: Suggested Citation
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