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Downside risk measures and equity returns in the NYSE

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  • Dar-Hsin Chen
  • Chun-Da Chen
  • Jianguo Chen

Abstract

Although investors are concerned foremost with mean and variance, they are also sensitive to downside risk. In this article we employ several risk variables of traditional and downside risk measures to evaluate the equity returns in the New York Stock Exchange (NYSE) market in order to test their explaining power. The test results show that variance (or SD) is better than beta in the performance. However, those traditional risk measures have almost less explanatory power than total downside risk measures, whether the downside risk measures are relative to zero, the mean return or the market index return when they are used to predict the future risk premium. The results also show that the significance of the downside risk measures in the NYSE market is different between different industry sectors, different periods of time and in different individual equities.

Suggested Citation

  • Dar-Hsin Chen & Chun-Da Chen & Jianguo Chen, 2009. "Downside risk measures and equity returns in the NYSE," Applied Economics, Taylor & Francis Journals, vol. 41(8), pages 1055-1070.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:8:p:1055-1070
    DOI: 10.1080/00036840601019075
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    References listed on IDEAS

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    Cited by:

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    3. John Griffin, 2015. "Risk Premia and Knightian Uncertainty in an Experimental Market Featuring a Long-Lived Asset," Fordham Economics Discussion Paper Series dp2015-01er:dp2015-01, Fordham University, Department of Economics.
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