Conventional and downside CAPM: The case of London stock exchange

Rutkowska-Ziarko, Anna; Markowski, Lesław; Pyke, Christopher; Amin, Saqib

doi:10.1016/j.gfj.2022.100759

Cited by 11 publications

(7 citation statements)

References 48 publications

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“…Significant positive relationships between beta coefficients and rates of return in periods of growth and significant negative relationships between these categories in periods of decline were also found in Tang and Shum (2003) based on thirteen developed capital markets. Rutkowska-Ziarko et al (2022), using data from the London Stock Exchange for individual securities and portfolios, provide strong evidence not only of the usefulness of the beta coefficient for the valuation of securities by investors and managers, but also indicate a significant valuation of downside beta coefficients.…”

Section: Literature Reviewmentioning

confidence: 94%

Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Markowski

2024

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Research background: Conventional CAPM is a well-known and tested theory on various capital markets. It was also repeatedly rejected as a model of capital pricing. This article proposes a different approach to both CAPM testing and the use of other risk measures. In addition, research is global, including emerging countries. Purpose of the article: This paper investigates the standard CAPM, and this model is based on higher moments of the return distribution for the global emerging market. In addition, this paper aims to compare the conventional and downside CAPM versions using the beta coefficient and co-moments. Methods: Contrary to the classical unconditional tests for the risk premium, conditional relationships are also estimated considering the market portfolio condition. Moreover, the studies considered conventional and downside approaches to risk measures. The cross-sectional regressions are based on the Fama-MacBeth (F-M) procedure and panel models. Findings & value added: The findings contribute to the debate on whether beta coefficient and higher order co-moments in conventional and downside approaches can explain the cross-sectional emerging indices returns. The unconditional models using all measures do not significantly describe the cross-sectional volatility of returns. The cross-sectional regressions in up and down-market based on both the classic F-M procedure and panel models show that the beta and co-kurtosis risk premium is significant and depends on market conditions. The risk premium for co-skewness is not valid, and the direction of the relationships is opposite than expected. Research also demonstrates that the test results of CAPM relationships are not robust to the presence of outliers and shocks resulting from the Covid-19 pandemic in the context of risk-return space. Research provides strong support for the importance of downside risk in the context of standard CAPM and, above all, higher co-moments.

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Section: Literature Reviewmentioning

confidence: 94%

Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Markowski

2024

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“…Evidence from emerging markets sensitivity to market changes (Rutkowska-Ziarko et al, 2022). Thus, CAPM beta represents systematic risk due to its relationship with market movements (Yu et al, 2021).…”

Section: Sample Selection Methodologymentioning

confidence: 99%

“…, 2023). Accordingly, this measure expresses a given asset’s sensitivity to market changes (Rutkowska-Ziarko et al. , 2022).…”

Section: Methodsmentioning

confidence: 99%

Board diversity and systematic risk: evidence from emerging markets

Daniel‐Vasconcelos

Crisóstomo

Ribeiro

2023

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Purpose This study aims to investigate the association between board diversity and systematic risk. The theoretical framework used in this study is based on agency and resource dependency theories.Design/methodology/approach Using a panel data set of 788 firms listed in the Morgan Stanley Capital International (MSCI) Emerging Markets index from 2015 to 2020, the authors apply Panel-Corrected Standard Error estimation method to test the three proposed hypotheses and the two-stage least squares method is adopted for the endogenous test.Findings The results suggest that board-specific skills diversity (BSSD) and board independence (BIND) have a negative impact on systematic risk. On the other hand, board gender diversity does not affect systematic risk. The findings reinforce the relevance of board diversity for reducing systematic risk and offer valuable insights for policymakers and investors, suggesting that the presence of directors with specific skills and independent directors could reduce firms’ systematic risk.Research limitations/implications The study extends the scope of agency and resource dependency theories by suggesting that the BSSD and BIND reduce agency costs and bring critical resources to the firm’s survival.Practical implications The findings support policymakers and managers in reducing systematic risk. In addition, the results demonstrate the importance of policies that encourage board diversity and BIND.Social implications The study demonstrates how companies can reduce systematic risk through board diversity and BIND.Originality/value To the best of our knowledge, this is the first study to investigate the association between board diversity and systematic risk only in emerging markets.

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“…No model is without its criticisms and the CAPM is subject to various limitations and challenges. To overcome such limitations, the CAPM has taken various forms in the last six decades of its journey: international CAPM (Black 1974;Stulz 1981), the inter-temporal capital asset pricing model (Merton 1973), expectile CAPM (Hu and Zheng 2020), and downside CAPM (Rutkowska-Ziarko et al 2022), etc. The CAPM is changing in terms of its face and utilization across sets of literature in the field of finance; thus, providing a future direction for research has become of prime importance.…”

Section: Introductionmentioning

confidence: 99%

The Six Decades of the Capital Asset Pricing Model: A Research Agenda

Kumar

Singh

et al. 2023

JRFM

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This paper re-examines the presence of the Sharpe–Treynor–Lintner–Mossin capital asset pricing model (CAPM) in the finance literature and is accompanied by a bibliometric summary analysis. The popular model is in its sixth decade; we summarized the relevance of the CAPM using publication and citation trends, as well as identifying its most prolific and impactful contributors. This paper is based on a systematic review of the literature and was completed with the help of various bibliometric techniques. During the study process, we presented a map of various themes and areas of the CAPM and its evolution. Our findings indicate that the extant literature on this topic (the cost of capital, asset pricing, portfolio, risk management, beta, systematic risk, and value premium) is based on the principles and assumptions of the CAPM. We are considering suggestions on the future use, trend, and direction of the CAPM, based on our summary of thematically developed clusters.

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Conventional and downside CAPM: The case of London stock exchange

Cited by 11 publications

References 48 publications

Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Conventional and downside CAPM with higher-order moments: Evidence from emerging markets

Board diversity and systematic risk: evidence from emerging markets

The Six Decades of the Capital Asset Pricing Model: A Research Agenda

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