Downside Risk And Empirical Asset Pricing Defended on Thursday, 16 December 2004

Currently, the Nobel prize winning Capital Asset Pricing Model (CAPM) celebrates its 40th birthday. Although widely applied in financial management, this model does not fully capture the empirical riskreturn relation of stocks; witness the beta, size, value and momentum effects. These problems may be caused by the use of variance as the relevant risk measure. This study analyzes if asset pricing models that use alternative risk measures better describe the empirical riskreturn trade-off. The results suggest that downside risk helps to better understand the cross-section of stock returns, especially during economic recessions.


portfolios, stocks, risk, CAPM, market, investors, risk aversion, downside risk, Asset pricing theory, Benchmark portfolios, stock market portfolio, efficiency, Three-factor model, Momentum

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