Downside risk measures and equity returns in the NYSE
- 1 March 2009
- journal article
- research article
- Published by Taylor & Francis Ltd in Applied Economics
- Vol. 41 (8), 1055-1070
- https://doi.org/10.1080/00036840601019075
Abstract
Although investors are concerned foremost with mean and variance, they are also sensitive to downside risk. In this article we employ several risk variables of traditional and downside risk measures to evaluate the equity returns in the New York Stock Exchange (NYSE) market in order to test their explaining power. The test results show that variance (or SD) is better than beta in the performance. However, those traditional risk measures have almost less explanatory power than total downside risk measures, whether the downside risk measures are relative to zero, the mean return or the market index return when they are used to predict the future risk premium. The results also show that the significance of the downside risk measures in the NYSE market is different between different industry sectors, different periods of time and in different individual equities.Keywords
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