Abstract

https://ssrn.com/abstract=875700
 
 

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Downside Risk


Joseph Chen


University of California, Davis - Graduate School of Management

Andrew Ang


BlackRock, Inc

Yuhang Xing


Rice University

December 2005

NBER Working Paper No. w11824

Abstract:     
Economists have long recognized that investors care differently about downside losses versus upside gains. Agents who place greater weight on downside risk demand additional compensation for holding stocks with high sensitivities to downside market movements. We show that the cross-section of stock returns reflects a premium for downside risk. Specifically, stocks that covary strongly with the market when the market declines have high average returns. We estimate that the downside risk premium is approximately 6% per annum. The reward for bearing downside risk is not simply compensation for regular market beta, nor is it explained by coskewness or liquidity risk, or size, book-to-market, and momentum characteristics.

Number of Pages in PDF File: 53


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Date posted: February 20, 2006  

Suggested Citation

Chen, Joseph and Ang, Andrew and Xing, Yuhang, Downside Risk (December 2005). NBER Working Paper No. w11824. Available at SSRN: https://ssrn.com/abstract=875700

Contact Information

Joseph S. Chen
University of California, Davis - Graduate School of Management ( email )
One Shields Avenue
Davis, CA 95616
United States
(530) 752-7155 (Phone)
(530) 752-2924 (Fax)

Andrew Ang (Contact Author)
BlackRock, Inc ( email )
55 East 52nd Street
New York City, NY 10055
United States
Yuhang Xing
Rice University ( email )
6100 South Main Street
Houston, TX 7705-1892
United States
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