articleReview of Financial StudiesJan 1, 2006Closed access

Downside Risk

AAAndrew AngJCJoseph ChenYXYuhang Xing

Columbia University · Southern California University for Professional Studies · +2 more institutions

Indexed incrossref

Abstract

Economists have long recognized that investors care differently about downside losses versus upside gains. Agents who place greater weight on downside risk demand additional compensation for holding stocks with high sensitivities to downside market movements. We show that the cross section of stock returns reflects a downside risk premium of approximately 6% per annum. Stocks that covary strongly with the market during market declines have high average returns. The reward for beasring downside risk is not simply compensation for regular market beta, nor is it explained by coskewness or liquidity risk, or by size, value, and momentum characteristics. (JEL C12, C15, C32, G12) Copyright 2006, Oxford University…

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1,070
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24.11
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100%
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Authors

3

Topics & keywords

Topics
Keywords
  • Downside risk
  • Economics
  • Financial economics
  • Portfolio
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