Downside Risk Aversion, Fixed Income Exposure, and the Value Premium Puzzle

48 Pages Posted: 14 Feb 2009 Last revised: 22 Jun 2013

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); Robeco Asset Management - Quantitative Investing

Thierry Post

Graduate School of Business of Nazarbayev University

Pim van Vliet

Robeco Asset Management - Quantitative Investing

Date Written: February 11, 2009

Abstract

The value premium substantially reduces for downside risk averse investors with a substantial fixed income exposure, such as insurance companies and pension funds. Growth stocks are attractive to these investors because they offer a good hedge against a bad bond performance. This result holds for evaluation horizons of around one year. Our findings cast doubt on the practical relevance of the value premium for such investors and reiterates the importance of the choice of the relevant test portfolio, risk measure and investment horizon in empirical tests of market efficiency and equilibrium.

Keywords: downside risk, semi-variance, interest rates, fixed income, value premium, asset pricing, behavioral finance, bond returns

JEL Classification: G11, G12

Suggested Citation

Baltussen, Guido and Post, Thierry and van Vliet, Pim, Downside Risk Aversion, Fixed Income Exposure, and the Value Premium Puzzle (February 11, 2009). Journal of Banking and Finance, Vol. 36, No. 12, 2012. Available at SSRN: https://ssrn.com/abstract=1343018 or http://dx.doi.org/10.2139/ssrn.1343018

Guido Baltussen (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Asset Management - Quantitative Investing ( email )

Rotterdam, 3011 AG
Netherlands

Thierry Post

Graduate School of Business of Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

Pim Van Vliet

Robeco Asset Management - Quantitative Investing ( email )

Rotterdam, 3011 AG
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
532
Abstract Views
2,712
rank
50,800
PlumX Metrics