Relationship between Downside Beta and CAPM Beta

17 Pages Posted: 7 Dec 2005 Last revised: 10 Aug 2008

See all articles by Don U. A. Galagedera

Don U. A. Galagedera

Monash University - Department of Econometrics and Business Statistics

Date Written: December 2005

Abstract

This paper establishes the relationship between the CAPM beta and three measures of downside beta assuming the market model and a downside version of the market model as data generating processes. For both processes the conditions under which the CAPM beta may numerically exactly/approximately equal the downside beta is discussed. An empirical example illustrates how the derived relationships between the betas may be useful in explaining differing conclusions in asset pricing studies.

Keywords: CAPM beta, downside risk, data generating process, asset pricing

JEL Classification: G12, G15

Suggested Citation

Galagedera, Don (Tissa) U. A., Relationship between Downside Beta and CAPM Beta (December 2005). Emerging Markets Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=868392

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)