A time-varying perspective on the CAPM and downside betas

Tsai, Hsiu-Jung; Chen, Ming‐Chi; Yang, Chih‐Yuan

doi:10.1016/j.iref.2013.07.006

Cited by 31 publications

(14 citation statements)

References 26 publications

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“…Other authors suggest the sensitivity of beta to market conditions as it is up or down, and introduce the concept of downside beta which considers as unwanted volatility that are recorded in down phase of the market. In this sense, a recent study by Tsai, Chen, and Yang (2014) compares the explanatory power of the classical beta to the downside beta. Based on a sample of 23 developed countries, the authors find that the downside beta explains better market returns than the classic beta.…”

Section: The Capm and Its Criticsmentioning

confidence: 99%

Estimating the Cost of Equity Capital: An Empirical Analysis in the Tunisian Context

Dakhlaoui

Gana

2015

AFR

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The purpose of this article is to look for the suitable model for estimating the cost of equity capital in the Tunisian stock market, using a sample of 26 Tunisian listed firms over the period 2003 to 2010. By conducting a comparative analysis between the CAPM, the three-factor model of Fama and French (1993) and the four-factor pricing model proposed by Carhart (1997), the latter model emerges as one who explains better the returns variations on the Tunisian Stock Exchange. We also conclude to the existence of a growth, small size and contrarian anomalies.

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Section: The Capm and Its Criticsmentioning

confidence: 99%

Estimating the Cost of Equity Capital: An Empirical Analysis in the Tunisian Context

Dakhlaoui

Gana

2015

AFR

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“…The idea of a risk-return relationship is strictly connected to CAPM postulates, but this model is often criticized as an insufficient theory to describe asset pricing. Many studies in developed markets demonstrate that downside measures outperform classical CAPM measures in explaining stock returns (Post, Van Vliet, 2006;Ang, Chen, & Xing, 2006;Tsai, Chen, & Yang, 2014). In emerging markets, Estrada (2002Estrada ( , 2007 demonstrated that downside measures were better priced and the downside CAPM model explained the risk-return relationship better than the traditional model.…”

Section: Literature Reviewmentioning

confidence: 99%

Market and Accounting Risk Factors of Asset Pricing in the Classical and Downside Approaches

Rutkowska-Ziarko

Markowski

2020

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Theoretical background: The variability of the company’s profitability is the result of the accompanying risk. To compare the profitability of many companies, relative profitability measures, which include profitability ratios, are more convenient. This article analyses market and accounting risk factors of CAPM. Risk was considered in variance and downside framework. Market betas, accounting betas were used in an extended version of the asset pricing model. Additionally, the influence of profitability ratios, such as ROA and ROE on the average rate of return on the capital market are considered.Purpose of the article: The main purpose of this study is to test the standard and extended CAPM relations between systematic risk measures and mean returns for single companies quoted on the Polish capital market and equally-weighted portfolios in two approaches: variance and downside risk.Research methods: The research based on individual securities and portfolios, compares the one-factor risk-return relationships with two-factor ones estimated using mean returns in cross-sectional regressions. The regressors were expressed in absolute terms and classical and downside beta coefficients. The sample includes companies differing in terms of size and across different industries.Main findings: Portfolios with higher classical or downside market betas generate higher mean returns. The negative risk premium for accounting betas for variance and downside risk was identified. It is not in accordance with our earlier study of the Polish construction sector, where a positive and significant risk premium for downside accounting betas was found. The highest explanatory power of rates on returns on the Polish capital market were found for average ROA and ROE. This confirms the results of the previous studies on the Polish capital market for food and construction sectors.

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“…The predictability of stock returns has always been a concern of researchers and practitioners. Hence, it was not surprising to note that the CAPM (Sharpe, 1964;Lintner, 1965), and Fama and French's three-factor model (Fama and French 1992) were commonly being used by researchers (Brooks and Tsolacos, 2003;Gaunt, 2004;Soumaré et al, 2013;Cao et al, 2005;Kryzanowski et al, 1993;McNelis, 1996;Serrano and Hoesli, 2007;Tsai et al, 2014) to predict stock returns. The CAPM explained the asset returns through market risks, while Fama and French's (1992) model measured the relationship between asset returns with market risk, size risk and value risk.…”

Section: Literature Reviewmentioning

confidence: 99%

Predictability of HK-REITs returns using artificial neural network

Loo

2019

JPIF

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Purpose The purpose of this paper is to determine if artificial neural network (ANN) works better than linear regression in predicting Hong Kong real estate investment trusts’ (REITs) excess return. Design/methodology/approach Both ANN and the regression were applied in this study to forecast the Hong Kong REITs’ (HK-REITs) return using the capital asset pricing model and Fama and French’s three-factor models. Each result was further split into annual time series as a measure to investigate the consistency of the performance across time. Findings ANN had produced a better forecasting results than the regression based on their trading performance. However, the forecasting performance varied across individual REITs and time periods. Practical implications ANN should be considered for use when one were to attempt forecasting the HK-REITs excess returns. However, the trading performance should be always compared with buy and hold strategy prior to make any investment decisions. Originality/value This paper tested the predicting power of ANN on the HK-REITs and the consistency of its predicting power.

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A time-varying perspective on the CAPM and downside betas

Cited by 31 publications

References 26 publications

Estimating the Cost of Equity Capital: An Empirical Analysis in the Tunisian Context

Estimating the Cost of Equity Capital: An Empirical Analysis in the Tunisian Context

Market and Accounting Risk Factors of Asset Pricing in the Classical and Downside Approaches

Predictability of HK-REITs returns using artificial neural network

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