Global Downside Risk and Equity Returns

58 Pages Posted: 19 Jul 2019

See all articles by Yigit Atilgan

Yigit Atilgan

Sabanci University

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business

K. Ozgur Demirtas

Sabanci University Graduate School of Management

A. Doruk Gunaydin

Sabanci University

Date Written: July 19, 2019

Abstract

This paper reexamines the relation between various downside risk measures and future equity returns in a global context that spans 26 developed markets. We find that there is no significantly positive relation between systematic downside risk and the cross-section of equity returns, and in fact, this relation is mostly negative. Moreover, stock-specific risk measures such as lower partial moment or extreme left tail risk measures such as value-at-risk and expected shortfall have a negative predictive relation with future equity returns. These negative relations are weaker but still observable for value-weighted portfolios. Focusing on additional test assets indicates a significantly negative relation between downside risk and future returns at the portfolio level whereas this relation is flat at the equity index level.

Keywords: downside risk, tail risk, left-tail momentum, equity returns, international finance

JEL Classification: G10, G11, G12

Suggested Citation

Atilgan, Yigit and Bali, Turan G. and Demirtas, K. Ozgur and Gunaydin, A. Doruk, Global Downside Risk and Equity Returns (July 19, 2019). Journal of International Money and Finance, Vol. 98, 2019; Georgetown McDonough School of Business Research Paper No. 3422621. Available at SSRN: https://ssrn.com/abstract=3422621

Yigit Atilgan (Contact Author)

Sabanci University ( email )

Orta Mahalle Üniversite Caddesi 27
Istanbul, Orhanli, 34956 Tuzla 34956
Turkey

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: https://sites.google.com/a/georgetown.edu/turan-bali

K. Ozgur Demirtas

Sabanci University Graduate School of Management ( email )

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

A. Doruk Gunaydin

Sabanci University ( email )

School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey

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