Abstract
This paper applies a method for measuring market risk called Downside Accounting Beta (DAB), previously developed by Rutkowska-Ziarko and Pyke (Econ Bus Rev 3(4):55–65, 2017). DAB shows how changes in the profitability of a sector affect the profitability of a company in that sector. DAB can also be applied to whole market. Empirical evidence is presented using the data from companies listed in the Polish construction sector of the Warsaw Stock Exchange. The analysis concludes that there are significant similarities between market betas and accounting betas. It also demonstrates that accounting betas using Return on Assets (ROA) and Return on Sales (ROS) are positively correlated with market betas and that there is a significant correlation between accounting betas with variance and semi-variance approaches. In addition, the paper identifies that the systematic risk on the Warsaw Stock Exchange is connected with the sensitivity of the company’s profitability of assets (ROA) and sales (ROS) in comparison with profitability for the whole sector. The practical implication of this research is that investors, owners and managers can apply DAB using ROA to calculate the systematic risk of companies that are not listed on stock markets and consequently to identify the levels of risk associated with companies within the sector.
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Notes
- 1.
ROA is calculated by dividing the net profit a company earns by its overall resources.
- 2.
ROE is calculated by dividing the net profit a company earns by the shareholder’s equity.
- 3.
ROS is calculated by dividing the net profit a company earns by its sales (revenue).
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Rutkowska-Ziarko, A., Pyke, C. (2018). Validating Downside Accounting Beta: Evidence from the Polish Construction Industry. In: Jajuga, K., Locarek-Junge, H., Orlowski, L. (eds) Contemporary Trends and Challenges in Finance. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-76228-9_8
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