Work detail

Asset pricing: Downside risk across U.S. industries

Author: Bc. Peter Palovič
Year: 2021 - summer
Leaders: Mgr. Ing. Matěj Nevrla
Consultants:
Work type: Bachelors
Language: English
Pages: 55
Awards and prizes:
Link: https://dspace.cuni.cz/handle/20.500.11956/147945
Abstract: This thesis investigates the comparative relationship between the traditional
CAPM and the downside risk CAPM. It proposes an asset pricing model in
which the traditional CAPM beta and DR-CAPM beta are the risk factors.
The goal of this thesis is to examine whether DR-CAPM beta represents a
significant risk factor that could be used when computing the risk premium
of the portfolio in the market. Therefore, this thesis referred to the FamaMacBeth two-stage regression model that was applied over monthly data of
48 US industries’ realized returns ranging from January, 1970 to January,
2021. Results indicate a non-significant relationship between the risk factors (traditional and downside beta) and expected return. Hence, there is
no evidence that both factors have any significant explanatory power in the
cross-section of stock returns. Moreover, we performed a robustness check of
the results using univariate models, relative beta and unconditional approach.
All of these models confirmed our results from the conditional approach.

Partners

Deloitte
Česká Spořitelna

Sponsors

CRIF
McKinsey
Patria Finance
EY