Risk-Adjusted Performances of World Equity Indices

35 Pages Posted: 13 Oct 2012 Last revised: 24 Mar 2016

See all articles by Yigit Atilgan

Yigit Atilgan

Sabanci University

K. Ozgur Demirtas

Sabanci University Graduate School of Management

Date Written: October 12, 2012

Abstract

This paper investigates whether equity indices of 24 emerging and 28 developed markets compensate their investors equally after taking risk into account, and examines the predictive power of reward-to-risk ratios for expected market returns. We place special emphasis on downside risk by calculating both nonparametric and parametric value at risk. We find that when all 52 markets are ranked based on their alternative reward-to-risk ratios, almost all of the countries in the top quartile are emerging markets whereas almost all of the countries in the bottom quartile are developed markets. The pooled means of the reward-to-risk ratios are significantly higher for emerging markets compared to those of developed markets. Our main analysis reveals that there is a significantly positive relation between various reward-to-risk metrics and expected market returns. Both portfolio analysis and cross-sectional regressions are utilized to examine this relation.

Keywords: risk-return relationship, downside risk, value-at-risk, emerging markets, 2008 Financial Crisis

JEL Classification: G10, G11, G12, G15

Suggested Citation

Atilgan, Yigit and Demirtas, K. Ozgur, Risk-Adjusted Performances of World Equity Indices (October 12, 2012). Emerging Markets Finance and Trade, Vol. 52, No. 3, 2016, Available at SSRN: https://ssrn.com/abstract=2160773 or http://dx.doi.org/10.2139/ssrn.2160773

Yigit Atilgan (Contact Author)

Sabanci University ( email )

Orta Mahalle ├ťniversite Caddesi 27
Istanbul, Orhanli, 34956 Tuzla 34956
Turkey

K. Ozgur Demirtas

Sabanci University Graduate School of Management ( email )

Sabanci University, School of Management
Orhanli Tuzla
Orhanl─▒-Tuzla, Istanbul, 34956
Turkey
(+90) 216-483-9985 (Phone)
(+90) 216-483-9699 (Fax)

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