Realized Semibetas and International Stock Return Predictability
15 Pages Posted: 2 Sep 2023 Last revised: 18 Nov 2023
Date Written: October 10, 2023
We decompose traditional betas into semibetas based on the signed covariation between the returns of individual stocks in an international market and the returns of three risk factors: local, global, and foreign exchange. Using high-frequency data, we empirically assess stock return co-movements with these three risk factors and find novel relationships between these factors and future returns. Our analysis shows that only semibetas derived from negative risk factor and stock return downturns command significant risk premia. Global downside risk is negatively priced in the international market and local downside risk is positively priced.
Keywords: Downside risk, Semicovariances, Semibetas, Global and local risk, Cross-sectional return variation, Risk premium, Mexican stock market
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