Relationship between Downside Beta and CAPM Beta
17 Pages Posted: 7 Dec 2005 Last revised: 10 Aug 2008
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: Suggested Citation
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