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Downside beta and the cross section of equity returns: A decade later

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  • Yigit Atilgan
  • K. Ozgur Demirtas
  • A. Doruk Gunaydin

Abstract

This study reexamines the relation between downside beta and equity returns in the United States. First, we replicate the 2006 work of Ang, Chen, and Xing who find a positive relation between downside beta and future equity returns for equal‐weighted portfolios of NYSE stocks. We show that this relation doesn't hold after using value‐weighted returns or controlling for various return determinants. We also extend the original sample, add AMEX/NASDAQ stocks or utilize alternative downside beta measures and still find no downside risk premium. We focus on factor analysis results, persistence of downside beta, and various subsamples to understand the economic reasons behind the findings.

Suggested Citation

  • Yigit Atilgan & K. Ozgur Demirtas & A. Doruk Gunaydin, 2020. "Downside beta and the cross section of equity returns: A decade later," European Financial Management, European Financial Management Association, vol. 26(2), pages 316-347, March.
    • Handle: RePEc:bla:eufman:v:26:y:2020:i:2:p:316-347
    DOI: 10.1111/eufm.12258
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    Cited by:

    1. Asgar Ali & K. N. Badhani, 2023. "Downside risk matters once the lottery effect is controlled: explaining risk–return relationship in the Indian equity market," Journal of Asset Management, Palgrave Macmillan, vol. 24(1), pages 27-43, February.
    2. Atilgan, Yigit & Bali, Turan G. & Demirtas, K. Ozgur & Gunaydin, A. Doruk, 2019. "Global downside risk and equity returns," Journal of International Money and Finance, Elsevier, vol. 98(C), pages 1-1.
    3. Malvika Saraf & Parthajit Kayal, 2022. "How Much Does Volatility Influence Stock Market Returns? – Empirical Evidence from India," Working Papers 2022-215, Madras School of Economics,Chennai,India.
    4. Valadkhani, Abbas, 2023. "Asymmetric downside risk across different sectors of the US equity market," Global Finance Journal, Elsevier, vol. 57(C).
    5. Khasawneh, Maher & McMillan, David G. & Kambouroudis, Dimos, 2024. "Left-tail risk and UK stock return predictability: Underreaction, overreaction, and arbitrage difficulties," International Review of Financial Analysis, Elsevier, vol. 95(PA).

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