Global downside risk and equity returns

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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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
Divisions: Sabancı Business School
Sabancı Business School > Accounting and Finance
Depositing User: Yiğit Atılgan
Date Deposited: 16 Aug 2021 22:18
Last Modified: 24 Jul 2023 21:21

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