Empirical Tests of the Mean-Semivariance CAPM

32 Pages Posted: 21 Jun 2004

See all articles by Thierry Post

Thierry Post

Graduate School of Business of Nazarbayev University

Pim van Vliet

Robeco Quantitative Investments

Date Written: June 2005

Abstract

The mean-semivariance CAPM better explains the cross-section of US stock returns than the traditional mean-variance CAPM does. If regular beta is replaced by downside beta, the cross-sectional risk-return relationship improves considerably. Especially during bad-states of the world, when the equity premium is high, we find a near-perfect relation between risk and return. The explanatory power of conditional downside risk remains after controlling for the known size, value and momentum effects.

Keywords: Asset pricing, downside risk, conditional tests, CAPM, non-linear kernels, asymmetry, semi-variance, lower partial moments

JEL Classification: C22, C32, G11, G12

Suggested Citation

Post, Thierry and van Vliet, Pim, Empirical Tests of the Mean-Semivariance CAPM (June 2005). Available at SSRN: https://ssrn.com/abstract=557220 or http://dx.doi.org/10.2139/ssrn.557220

Thierry Post

Graduate School of Business of Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

Pim Van Vliet (Contact Author)

Robeco Quantitative Investments ( email )

Rotterdam, 3011 AG
Netherlands

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