A Treatise on Downside Risk

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dc.contributor.authorArtavanis, Nikolaosen
dc.contributor.committeechairKumar, Ramanen
dc.contributor.committeechairKadlec, Gregory B.en
dc.contributor.committeememberPatterson, Douglas M.en
dc.contributor.committeememberInce, Ozgur Safaken
dc.contributor.committeememberSingal, Vijayen
dc.contributor.committeememberKecskes, Ambrusen
dc.contributor.departmentFinance, Insurance and Business Lawen
dc.date.accessioned2013-04-25T08:00:11Zen
dc.date.available2013-04-25T08:00:11Zen
dc.date.issued2013-04-24en
dc.description.abstractThis dissertation is comprised of two papers. The first paper (Chapter 1) provides the theoretical foundation for the estimation of systematic downside risk. Using a new approach, I derive a measure of downside systematic risk, downside beta, that is free of the endogeneity problem and thus straightforward to calculate. Since there is no consensus in the literature regarding the appropriate method for the estimation of downside beta, I review the alternative specifications proposed in the past. I explicitly show that the derived formula here is more efficient in capturing downside risk on both theoretical grounds and in terms of empirical results. Using this efficient specification of systematic downside risk, I show that downside beta has increased explanatory power towards the cross-section of equity returns as compared to unconditional beta. In particular, downside beta predicts larger and more significant future premia, insignificant intercepts in portfolio cross-section tests and cannot be subsumed by additional risk factors proposed in the past literature. I attribute this superior performance to the ability of downside risk to capture distress risk and to the fact that it does not penalize (reward) good (bad) events in good states. In the second paper (Chapter 2) that is co-authored with my advisor, Gregory Kadlec, we exploit the notion of downside risk to explain a long-withstanding market anomaly; the long-term stock return reversals. We show that downside betas of past losers are significantly greater than downside betas of past winners, and the inclusion of downside beta in Fama-Macbeth regressions subsumes the reversal effect.en
dc.description.degreePh. D.en
dc.format.mediumETDen
dc.identifier.othervt_gsexam:761en
dc.identifier.urihttp://hdl.handle.net/10919/19345en
dc.publisherVirginia Techen
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectdownside risken
dc.subjectdownside betaen
dc.subjectasset pricingen
dc.subjectstock reversalsen
dc.subjectcontrarian effecten
dc.subjectmarket efficiencyen
dc.titleA Treatise on Downside Risken
dc.typeDissertationen
thesis.degree.disciplineBusiness, Financeen
thesis.degree.grantorVirginia Polytechnic Institute and State Universityen
thesis.degree.leveldoctoralen
thesis.degree.namePh. D.en

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