Downside Beta and the Cross-Section of Equity Returns: A Decade Later
European Financial Management, Vol. 26, No. 2, 2020
37 Pages Posted: 20 Sep 2017 Last revised: 3 Mar 2020
Date Written: September 18, 2016
This study reexamines the relation between downside beta and equity returns in the U.S. First, we replicate Ang, Chen and Xing (2006) who find a positive relation between downside beta and future equity returns for equal-weighted portfolios of NYSE stocks. We show that this relation doesn’t hold after using value-weighted returns or controlling for various return determinants. We also extend the original sample, add AMEX/NASDAQ stocks or utilize alternative downside beta measures and still find no downside risk premium. We focus on factor analysis results, persistence of downside beta and various subsamples to understand the economic reasons behind the findings.
Keywords: Downside Beta, Downside Risk, Tail Risk, Equity Returns, Asset Pricing
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation