Sorting Out Downside Beta

26 Pages Posted: 17 Mar 2009 Last revised: 9 Dec 2010

See all articles by Thierry Post

Thierry Post

Graduate School of Business of Nazarbayev University

Pim van Vliet

Robeco Asset Management - Quantitative Investing

Simon Lansdorp

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

Multiple version iconThere are 2 versions of this paper

Date Written: 18 2009 2,

Abstract

Downside risk, when properly defined and estimated, helps to explain the cross-section of US stock returns. Sorting stocks by a proper estimate of downside market beta leads to a substantially larger cross-sectional spread in average returns than sorting on regular market beta. This result arises despite the fact that downside beta is based on fewer return observations and therefore is more difficult to estimate and predict. The explanatory power of downside risk remains after controlling for other stock characteristics, including firm-level size, value and momentum.

Keywords: asset pricing, downside risk, semi-variance, lower partial moments, beta

JEL Classification: G3, M, G12

Suggested Citation

Post, Thierry and van Vliet, Pim and Lansdorp, Simon, Sorting Out Downside Beta (18 2009 2,). ; 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1360708

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

Simon 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

Register to save articles to
your library

Register

Paper statistics

Downloads
1,013
Abstract Views
4,646
rank
8,733
PlumX Metrics