Is Systematic Downside Beta Risk Really Priced? Evidence in Emerging Market Data

39 Pages Posted: 30 Aug 2005

See all articles by Don U. A. Galagedera

Don U. A. Galagedera

Monash University - Department of Econometrics and Business Statistics

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

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

Galagedera, Don (Tissa) U. A. and Brooks, Robert Darren, Is Systematic Downside Beta Risk Really Priced? Evidence in Emerging Market Data (September 2005 ). Available at SSRN: https://ssrn.com/abstract=790106 or http://dx.doi.org/10.2139/ssrn.790106

Don (Tissa) U. A. Galagedera (Contact Author)

Monash University - Department of Econometrics and Business Statistics ( email )

900 Dandenong Road
Caulfield East, VIC 3145
Australia
+61 3 9903 1578 (Phone)
+61 3 9903 2007 (Fax)

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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