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Expected downside risk and asset prices: characteristics of emerging and developed European markets

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  • Mihály Ormos

    (Budapest University of Technology and Economics)

  • Dusán Timotity

    (Budapest University of Technology and Economics)

Abstract

This paper discusses an empirical analysis of the expected downside risk based asset-pricing model on Central and Eastern European and developed Western European markets. The investigated risk measure applies a nonparametric approach that allows getting rid of any assumption on the distribution of returns, moreover, as presented in this paper, captures risk and expected return with superior performance. Furthermore, we also show that dollar-denominated returns often indicate a better fit than regressions in local currency suggesting that international capital inflow does play an important role in asset prices. This latter finding is particularly significant on Developed European capital markets, which is in contradiction with the belief of international investors having a greater influence on emerging markets compared to developed ones.

Suggested Citation

  • Mihály Ormos & Dusán Timotity, 2017. "Expected downside risk and asset prices: characteristics of emerging and developed European markets," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(3), pages 529-546, August.
    • Handle: RePEc:kap:empiri:v:44:y:2017:i:3:d:10.1007_s10663-016-9329-3
    DOI: 10.1007/s10663-016-9329-3
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    1. Ormos Mihály & Timotity Dusán, 2017. "The Case of “Less is More”: Modelling Risk-Preference with Expected Downside Risk," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(2), pages 1-14, June.

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    More about this item

    Keywords

    Expected downside risk; EDR; Asset pricing; Emerging markets; Dollar-denominated return;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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