Upside beta

Abstract: This paper aims to investigate patterns in UK stock returns related to downside risk, with particular focus on stock returns during financial crises.,First, stocks are sorted into five quintile portfolios based on the relevant beta values (classic beta, downside beta and upside beta, calculated by the moving window approach). Second, patterns of portfolio returns are examined during various sub-periods. Finally, predictive powers of beta and downside beta are examined.,The downside risk is observed to have a significant positive impact on contemporaneous stock returns and a negative impact on future returns in general. In contrast, an inverse relationship between risk and return is observed when stocks are sorted by beta, contrary to the classic literature. UK stock returns exhibit clear time sensitivity, especially during financial crises.,This paper focuses on the impact of the downside risk on UK stock returns, assessed via a comprehensive sub-period analysis. This paper fills the gap in the existing literature, in which very few studies examine the time sensitivity in relation to the downside risk and the risk-return anomaly in the UK stock market using a long sample period.

Abstract: The study analyzes the beta-return characteristic, considering the asymmetric beta behavior in the up market versus the down market for the Bursa Malaysia (BM). This study uses a sample period from 2001-2015 with two dual-beta models, the capital asset pricing model (CAPM), and the Fama-French, three-factor (FF3F) model, to examine 60 stocks listed on the bourse. The estimated return and beta indicate that most stocks have experienced an increasing (decreasing) beta in the downtrend (uptrend) period. It is inferred that investors are rewarded with a positive risk premium for holding an asset in the down market, while the upside beta carries a negative premium. If news asymmetry captures a significant part of investors' risk perception in the market, there is evidence that a conditional FF3F model is more useful than a conditional CAPM, which is likened to both the dual-beta FF3F and the CAPM in an unconditional context. The purpose of this study is to analyze the beta-return characteristic, taking into account the asymmetric beta behavior in the upmarket versus the down market in the Bursa Malaysia (BM). This study takes place over a period of 15 years from 2001 to 2015 and utilizes dual beta models of CAPM and Fama-French model to examine 60 BM-listed stocks. The estimation of return and beta indicates that majority of stocks have experienced an increasing (decreasing) beta in the downtrend (uptrend) period. It is also inferred that investors are rewarded with positive risk premium for holding the asset in down market, while upside beta carries the negative premium. If news asymmetry is considered to capture a significant part of investors' risk perception in the Malaysian market, the findings constitute evidence that conditional Fama-French model is more useful than the conditional CAPM likened with both dual beta Fama-French 3-factor model and CAPM in unconditional context.

Abstract: I provide a novel risk-based explanation for the profitability of momentum strategies. I show that the past winners and the past losers are differently exposed to the upside and downside market risks. Winners systematically have higher relative downside market betas and lower relative upside market betas than losers. As a result, the winner-minus-loser momentum portfolios are exposed to extra downside market risk, but hedge against the upside market risk. Such asymmetry in the upside and downside risks is a mechanical consequence of rebalancing momentum portfolios. But it is unattractive for an investor because both positive relative downside betas and negative relative upside betas carry positive risk premiums according to the Downside-Risk CAPM. Hence, the high returns to momentum strategies are a mere compensation for their upside and downside risks. The Downside Risk-CAPM is a robust unifying explanation of returns to momentum portfolios, constructed for different geographical and asset markets, and it outperforms alternative multi-factor models.