Semivariance Decomposition of Country-Level Returns

Posted: 4 Oct 2011

See all articles by Steven L. Beach

Steven L. Beach

Radford University - Department of Accounting, Finance & Business Law; Radford University - College of Business and Economics

Date Written: October 1, 2011

Abstract

A methodology for decomposing the below-mean semivariance into systematic and unsystematic components is introduced. The decomposition of variance and semivariance of asset returns is presented for forty-four country-level indexes. The proportion of risk explained for country-level returns in the Downside CAPM framework is higher than in the CAPM framework. On average for all markets, global systematic risk, as a proportion of total risk, is 42% in the CAPM and 56% in the Downside CAPM. A strong role for semivariance and downside beta is found in explaining the cross-section of country returns. Although skew is highly correlated to semivariance, no cross-sectional confirmation of the role of skew as a priced risk or in explaining the downside risk is identified.

Keywords: D-CAPM, Downside Risk, Semivariance Decomposition, Systematic Risk

JEL Classification: G15, G12

Suggested Citation

Beach, Steven L., Semivariance Decomposition of Country-Level Returns (October 1, 2011). International Review of Economics & Finance, Vol. 20, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=1938003

Steven L. Beach (Contact Author)

Radford University - Department of Accounting, Finance & Business Law ( email )

Whitt Hall
College of Business and Economics
Radford, VA 24142-6951
United States
540-831-5087 (Phone)

HOME PAGE: http://www.radford.edu/~slbeach

Radford University - College of Business and Economics

United States
540-831-5087 (Phone)

HOME PAGE: http://www.radford.edu/~slbeach

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