English, Article edition: AN ANALYTICAL FRAMEWORK FOR EXPLAINING RELATIVE PERFORMANCE OF CAPM BETA AND DOWNSIDE BETA DON U. A. GALAGEDERA

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Bookmark: http://trove.nla.gov.au/version/40213
Physical Description
  • article
Language
  • English

Edition details

Title
  • AN ANALYTICAL FRAMEWORK FOR EXPLAINING RELATIVE PERFORMANCE OF CAPM BETA AND DOWNSIDE BETA
Author
  • DON U. A. GALAGEDERA
Physical Description
  • article
Notes
  • Even though investors' view of risk is generally regarded as related to the downside of the return distribution the CAPM beta is still a widely used measure of systematic risk. A number of studies compare the empirical performance of CAPM beta and downside beta in explaining the variation in portfolio returns and report mixed results. This paper provides a basis for explaining such mixed results. Using data generating processes in the mean-variance and mean-lower partial moment frameworks, analytical relationships between the CAPM beta and downside beta are derived. The derived relationships reveal that the association between the two systematic risk measures is to a great extent dependent on the volatility of the market portfolio returns and the deviation of the target rate from the risk-free rate. How the relationships derived here may be used in practice is demonstrated using empirical data.
  • CAPM beta, downside beta, equilibrium pricing models, data generating processes, asset pricing
  • RePEc:wsi:ijtafx:v:12:y:2009:i:03:p:341-358
Language
  • English
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