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Is There an Intertemporal Relation between Downside Risk and Expected Returns?

Year: 2009

Type: article

Abstract: This paper examines the intertemporal relation between downside risk and expected stock returns. Value at Risk (VaR), expected shortfall, and tail risk are used as measures of downside risk to determine the existence and significance of a risk-return tradeoff. We find a positive and significant relation between downside risk and the portfolio returns on NYSE/AMEX/Nasdaq stocks. VaR remains a superior measure of risk when compared with the traditional risk measures. These results are robust across different stock market indices, different measures of downside risk, loss probability levels, and after controlling for macroeconomic variables and volatility over different holding periods as originally proposed by Harrison and Zhang (1999).

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109009990159

Authors: Turan G. Bali, K. Ozgur Demirtas, Haim Levy

Institutions: Baruch College, City University of New York, Georgetown University, Sabancı Üniversitesi, Fordham University, Hebrew University of Jerusalem

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2097017827

FWCI: 18.43

Cites: 49

Cited by: 281

Related to: 10