Downside Beta and Equity Returns around the World
The Journal of Portfolio Management, Vol. 44, No. 7
Posted: 23 Jun 2016 Last revised: 10 Jul 2019
Date Written: June 21, 2015
Abstract
We investigate the relation between downside beta and stock returns in a global context using more than 170 million daily return observations. Contrary to the findings in the U.S. equity market, we show that downside beta does not explain the cross-sectional differences in future and contemporaneous returns in an international setting. The results are robust to using different methods to estimate downside beta, omitting the U.S. stocks from the global sample, utilizing alternative global pricing factors, and replicating the analysis for various country groupings. Thus, we overturn the heavily cited finding on the relation between downside beta and equity returns.
Keywords: Downside Risk, Downside Beta, Equity Returns, Asset Pricing, International Finance
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation
Turan G. Bali
Georgetown University - McDonough School of Business ( email )
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