Conventional and Downside Betas and Higher Co-moments in the Asset Pricing Relations

Markowski, Lesław

doi:10.1007/978-3-030-43078-8_5

Lesław Markowski⁵

Part of the book series: Springer Proceedings in Business and Economics ((SPBE))

378 Accesses
1 Citations

Abstract

This study examined the cross-sectional relationships between realized returns and systematic risk measures using sub-sectoral indices quoted on Warsaw Stock Exchange. In addition to the classical beta, the aim of the study is also to check the impact of higher order co-moments on the sub-indices pricing. The unconditional risk-return relationships are estimated using classical and downside measures and conditional relations in terms of market condition. The downside risk premiums are significantly positive which means, that the downside risk is priced in Polish stock market. The downside risk measures outperform the classical ones. While the market condition is incorporated as the conditioning variable the risk factors acquire significance. Beta coefficient and co-kurtosis generate positive premiums in the up market and negative in the down market. Using the sub-sector indices returns no significant co-skewness pricing in the up market is found. The research show that measures of systematic risk such as the beta coefficient and higher order co-moments in conventional and downside approach are appropriate risk factors in asset pricing.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Chapter: USD 29.95; Price excludes VAT (USA)

eBook: USD 84.99; Price excludes VAT (USA)

Softcover Book: USD 109.99; Price excludes VAT (USA)

Hardcover Book: USD 109.99; Price excludes VAT (USA)

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

Alles L, Murray L (2013) Rewards for downside risk in Asian markets. J Bank Finance 37(7):2501. https://doi.org/10.1016/j.jbankfin.2013.02.006
Article Google Scholar
Ang A, Chen J, Xing Y (2006) Downside risk. Rev Financ Stud 19(4):1191–1239. https://doi.org/10.1093/rfs/hhj035
Article Google Scholar
Bawa VS, Lindenberg EB (1977) Capital market equilibrium in a mean-lower partial moment framework. J Financ Econ 5(2):189–200. https://doi.org/10.1016/0304-405X(77)90017-4
Article Google Scholar
Bilgin R, Basti E (2014) Further evidence on the validity of CAPM: the Istambul stock exchange application. Inz Ekon-Eng Econ 25(1):5–12. https://doi.org/10.5755/j01.ee.25.1.1847
Article Google Scholar
Chen D, Chen C, Chen J (2009) Downside risk measures and equity returns in the NYSE. Appl Econ 41(8):1055–1070. https://doi.org/10.1080/00036840601019075
Article Google Scholar
Chhapra IU, Kashif M (2019) Higher Co-moments and downside beta in asset pricing. Asian Acad Manag J Account Financ 15(1):129–155. https://doi.org/10.21315/aamjaf2019.15.1.6
Duc THL, Nguyen SP (2018) Higher co-moments and asset pricing on emerging stock markets by quantile regression approach. Bus Econ Horiz 141:132–142. https://doi.org/10.15208/beh.2018.11
Estrada J (2002) Systematic risk in emerging markets: the D-CAPM. Emerg Mark Rev 3(4):365–379. https://doi.org/10.1016/S1566-141(02)00042-0
Article Google Scholar
Estrada J (2007) Mean-semivariance behaviour: downside risk and capital asset pricing. Int Rev Econ Financ 16(2):169–185. https://doi.org/10.1016/j.iref.2005.03.003
Article Google Scholar
Fama E, MacBeth J (1973) Risk, return and equilibrium: empirical tests. J Polit Econ 81(3):607–636. https://doi.org/10.1086/260061
Galagedera Don UA (2009) Economic significance of downside risk in developed and emerging markets. Appl Econ Lett 16(16):1627–1632. https://doi.org/10.1080/13504850701604060
Article Google Scholar
Galagedera Don UA, Henry D, Silvapulle P (2003) Empirical evidence on the conditional relation between higher-order systematic co-moments and security returns. Q J Bus Econ 42(1/2):121–137. Retrieved from https://www.jstor.org/stable/40473367
Harlow WV, Rao RKS (1989) Asset pricing in a generalized mean-lower partial moment framework: theory and evidence. J Financ Quant Anal 24(3):285–311. https://doi.org/10.2307/2330813
Article Google Scholar
Hogan W, Warren J (1974) Toward the development of an equilibrium capital-market model based on semivariance. J Financ Quant Anal 9(1):1–11. https://doi.org/10.2307/2329964
Article Google Scholar
Jagannathan R, Wang Z (1996) The conditional CAPM and the cross-section of expected returns. J Financ 51(1):3–53. https://doi.org/10.1111/j.1540-6261.1996.tb05201.x
Article Google Scholar
Lee CL, Robinson J, Reed R (2008) Downside beta and the cross-sectional determinants of listed property trust returns. J R Estate Portf Manag 14(1):49–62. Retrieved from https://www.jstor.org/stable/24883130
Markowski L (2019) Wycena aktywów kapitałowych w klasycznym i dolnostronnym podejściu do ryzyka [Capital assets pricing in classical and downside risk approach] Wiadomości Statystyczne. Pol Stat 64(11):58–75
Google Scholar
Mora-Valencia A, Perote J, Arias JET (2017) The return performance of cubic market model: an application to emerging markets. Emerg Mark Financ and Trade 53(10):2233–2241. https://doi.org/10.1080/1540496X.2016.1251902
Article Google Scholar
Neslihanoglu S, Sogiakas V, McColl JH, Lee D (2017) Nonlinearities in the CAPM: evidence from developed and emerging markets. J Forecast 36(8):867–897. https://doi.org/10.1002/for.2389
Article Google Scholar
Nurjannah, Galagedera Don UA, Brooks R (2012) Conditional relation between systematic risk and returns in the conventional and downside frameworks: evidence from the indonesian market. J Emerg Mark Financ 11(3):271–300. https://doi.org/10.1177/0972652712466498
Pettengill GN, Sundaram S, Mathur I (1995) The conditional relation between beta and returns. J Financ Quant Anal 30(1):101–116. https://doi.org/10.2307/2331255
Article Google Scholar
Post T, van Vliet PV (2006) Downside risk and asset pricing. J Bank Finance 30(3):823–849. https://doi.org/10.1016/j.jbankfin.2005.06.005
Article Google Scholar
Rutkowska-Ziarko A, Markowski L, Pyke C (2019) Accounting beta in the extended version of CAPM. Contemporary Trends and Challenges in Finance. In: Jajuga K, Locarek-Junge H, Orłowski LT, Staehr K (eds) Proceedings from the 4th Wroclaw international conference in Finance, Springer, Cham, pp 45–53
Google Scholar
Tang GYN, Shum WC (2003) The conditional relationship between beta and returns: recent evidence from international stock markets. Int Bus Rev 12(1):109–126. https://doi.org/10.1016/S0969-5931(02)00090-2
Article Google Scholar
Truong TT, Kim J (2018) Sustainability managed against downside risk and the cost of equity: evidence in Korea. Sustainability 10(11):3669. https://doi.org/10.3390/su10113969
Article Google Scholar
Trzpiot G, Krężołek D (2006) Statystyczna weryfikacja modelu CAPM na przykładzie polskiego rynku kapitałowego [Statistical verification of the CAPM on the example of the Polish capital market]. Zeszyty Naukowe SGGW w Warszawie Ekonomika i Organizacja Gospodarki Żywnościowej 60: 341–351. Retrieved from http://eiogz.wne.sggw.pl
Tsai H, Chen M, Yang C (2014) A time-varying perspective on the CAPM and downside betas. Int Rev Econ Financ 29:440–454. https://doi.org/10.1016/j.iref.2013.07.006
Article Google Scholar

Download references

Author information

Authors and Affiliations

Department of Finance, Faculty of Economic Sciences, University of Warmia and Mazury, Olsztyn, Poland
Lesław Markowski

Authors

Lesław Markowski
View author publications
You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Lesław Markowski .

Editor information

Editors and Affiliations

Department of Financial Investments and Risk Management, Wroclaw University of Economics and Business, Wrocław, Poland
Krzysztof Jajuga
Faculty of Management and Economics, Technische Universität Dresden, Dresden, Sachsen, Germany
Hermann Locarek-Junge
Department of Economics and Finance, John F. Welch College of Business, Sacred Heart University, Fairfield, CT, USA
Lucjan T. Orlowski
Department of Economics and Finance, Tallinn University of Technology, Tallinn, Estonia
Karsten Staehr

Rights and permissions

Reprints and permissions

Copyright information

About this paper

Cite this paper

Markowski, L. (2020). Conventional and Downside Betas and Higher Co-moments in the Asset Pricing Relations. In: Jajuga, K., Locarek-Junge, H., Orlowski, L., Staehr, K. (eds) Contemporary Trends and Challenges in Finance. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-43078-8_5

Download citation

DOI: https://doi.org/10.1007/978-3-030-43078-8_5
Published: 07 May 2020
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-43077-1
Online ISBN: 978-3-030-43078-8
eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics