Template-Type: ReDIF-Paper 1.0
Author-Name: Post, G.T.
Author-Name-Last: Post
Author-Name-First: Thierry
Author-Name: van Vliet, P.
Author-Name-Last: van Vliet
Author-Name-First: Pim
Author-Person: pvl6
Title: Conditional Downside Risk and the CAPM
Abstract: The mean-semivariance CAPM strongly outperforms the traditional mean-variance CAPM in terms of its ability to explain the cross-section of US stock returns. If regular beta is replaced by downside beta, the traditional risk-return relationship is restored. The downside betas of low-beta stocks are substantially higher than the regular betas, while high-beta stocks involve less systematic downside risk than suggested by their regular betas. This pattern is especially pronounced during bad states-of-the-world, when the market risk premium is high. In sum, our results provide evidence in favor of market portfolio efficiency, provided we account for conditional downside risk.
Creation-Date: 2004-07-28
File-URL: https://repub.eur.nl/pub/1425/ERS%202004%20048%20F&A.pdf
File-Format: application/pdf
Series: RePEc:ems:eureri
Number: ERS-2004-048-F&A
Classification-JEL: C22, C32, G11, G12, G3, M
Keywords: CAPM, Downside risk, asymmetry, conditional downside risk, lower partial moments, non-linear kernel, semi-variance
Handle: RePEc:ems:eureri:1425