Abstract

http://ssrn.com/abstract=1980614
 
 

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Sorting Out Downside Beta


Thierry Post


Koc University - Graduate School of Business

Pim Van Vliet


Robeco Asset Management - Quantitative Strategies

Simon D. Lansdorp


Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute

October 10, 2012


Abstract:     
This study analyzes various measures of the downside beta of stocks. Downside beta is sometimes defined and estimated in different ways. Theoretically, an approach based on the mean-semi-variance equilibrium model appears superior. Two known alternative approaches are not consistent with the basic principles of coherent risk measures and the properties of a well-behaved pricing kernel. Moreover, to achieve superior out-of-sample predictive power, it is essential to estimate the downside beta definition that follows from the theory. Using monthly stock-level data, the downside beta premium, if properly defined and estimated, is roughly four to seven percent per annum, depending on the model specification and sample period, compared with a premium of zero to three percent for regular market beta.

Number of Pages in PDF File: 28

Keywords: Asset pricing, downside beta, CAPM, downside risk, semi-variance

JEL Classification: C22, C32, G11, G12

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Date posted: January 6, 2012 ; Last revised: October 10, 2012

Suggested Citation

Post, Thierry and van Vliet, Pim and Lansdorp, Simon D., Sorting Out Downside Beta (October 10, 2012). Available at SSRN: http://ssrn.com/abstract=1980614 or http://dx.doi.org/10.2139/ssrn.1980614

Contact Information

Thierry Post
Koc University - Graduate School of Business ( email )
Rumelifeneri Yolu
34450 Sariyer
Istanbul
Turkey
Pim Van Vliet
Robeco Asset Management - Quantitative Strategies ( email )
Rotterdam, 3011 AG
Netherlands
Simon D. Lansdorp (Contact Author)
Robeco Quantitative Strategies ( email )
Rotterdam, 3011 AG
Netherlands
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
Tinbergen Institute ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
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References:  26
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