Economic significance of downside risk in developed and emerging markets

Abstract

This study examines in the cross-section the association between excess return and systematic risk measured in the downside framework. Two measures of risk in the downside; downside beta and downside co-skewness are investigated. Both downside risk measures perform poorly compared to the CAPM beta in developed markets. In emerging markets there is evidence to suggest that downside co-skewness may be a better measure of risk compared to the CAPM beta and downside beta.