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Global downside risk and equity returns

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Atılgan, Yiğit and Bali, Turan G. and Demirtaş, Özgür and Günaydın, Ali Doruk (2019) Global downside risk and equity returns. Journal of International Money and Finance, 98 . ISSN 0261-5606 (Print) 1873-0639 (Online)

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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2019.102065

Abstract

This paper reexamines the relation between various downside risk measures and future equity returns in a global context that spans 26 developed markets. We find that there is no significantly positive relation between systematic downside risk and the cross-section of equity returns, and in fact, this relation is mostly negative. Moreover, stock-specific risk measures such as lower partial moment or extreme left tail risk measures such as value-at-risk and expected shortfall have a negative predictive relation with future equity returns. These negative relations are weaker but still observable for value-weighted portfolios. Focusing on additional test assets indicates a significantly negative relation between downside risk and future returns at the portfolio level whereas this relation is flat at the equity index level.

Item Type:Article
Uncontrolled Keywords:Downside risk, Tail risk, Left-tail momentum, Equity returns, International finance
Subjects:H Social Sciences > HG Finance > HG4501-6051 Investment, capital formation, speculation
H Social Sciences > HG Finance > HG3810-4000 Foreign exchange. International finance
ID Code:41622
Deposited By:Yiğit Atılgan
Deposited On:16 Aug 2021 22:18
Last Modified:16 Aug 2021 22:18

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