IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v68y2023ics106294082300116x.html
   My bibliography  Save this article

Downside risk and profitability ratios: The case of the New York Stock Exchange

Author

Listed:
  • Rutkowska-Ziarko, Anna

Abstract

This article analyses the relationship between the volatility and sensitivity measures determined based on accounting profitability ratios and those calculated based on rates of return of public corporations from DJIA. The study employed downside and symmetric risk measures. The average accounting profitability and mean rate of returns on NYSE have also been compared. An additional goal was to present a classification of selected risk measures divided into accounting and market ones. This study examined the profitability and risk of the largest companies listed on the NYSE. The risk measurement was performed with the measures based on information from financial statements as well as measures whose calculation was based on the market share prices. The total risk was considered in the context of variance (standard deviation) and semi-variance (semi-deviation). The downside systematic risk was measured with the modified Bawa-Lindenberg and Harlow-Rao formulas. These formulas were also implemented to determine the downside accounting betas. The empirical studies helped to identify a positive correlation between the mean quarterly profitability ratios (ROA and ROE) and the mean quarterly return rates in the largest NYSE companies. The correlations between the market and accounting betas calculated using the Bawa-Lindenberg modified formula were positive and statistically significant. A positive and statistically positive correlation between the market and accounting measures was also found for the total downside risk. Moreover, it has been shown that for both total and systematic market risk measures their accounting equivalents can be used. The accounting risk measures may be a valuable supplement to market measures. Of particular importance in this context are the downside accounting beta coefficients. The downside accounting betas are a new group of risk measures, and research into their use in risk analysis and in asset pricing is in its early stages.

Suggested Citation

  • Rutkowska-Ziarko, Anna, 2023. "Downside risk and profitability ratios: The case of the New York Stock Exchange," The North American Journal of Economics and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s106294082300116x
    DOI: 10.1016/j.najef.2023.101993
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S106294082300116X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2023.101993?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Accounting beta; Downside risk; Profitability ratios; CAPM; Semi-variance; NYSE;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s106294082300116x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.