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. |
