Downside Beta Premium
Posted in Volatility Effects
January 18, 2012
Can investors earn a reliable premium from stocks with high downside risk? In their January 2012 paper entitle “Sorting Out Downside Beta”, Thierry Post, Pim Van Vliet and Simon Lansdorp measure in four ways (including regular beta) the premium associated with stock sensitivity to market movements. They estimate excess market returns based on total returns of a broad capitalization-weighted U.S. stock market index relative to one-month U.S. Treasury bills. They use rolling historical windows of 60 months to calculate beta and three alternative measures of downside beta. Using monthly total returns and firm characteristics for a broad sample of U.S. common stocks during 1926 through 2010, they find that: (more…)