Asymmetric Beta Comovement and Systematic Downside Risk

Eric Jondeau and Qunzi Zhang
Additional contact information
Qunzi Zhang: Shandong University

No 14-59, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: In this paper, we document evidence that downside betas tend to comove more than upside betas during a financial crisis, but upside betas tend to comove more than the downside betas during financial booms. We find that the asymmetry between Downside-Beta Comovement and Upside-Beta Comovement is the main driving force for market level skewness. An indicator called "Systematic Downside Risk" (SDR) is defined to characterize this asymmetry in the comovement of betas. This indicator negatively predicts future market returns. The SDR effectively forecasts future monthly stock market movements with an out-of-sample R-square above 2.27% relative to a strategy based on historical mean. An investor who timed the market using SDR would have obtained a Sharpe ratio gain of 0.206.

Keywords: Systematic Risk; Skewness; Predictability; Trading Strategies (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G17 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2014-11
New Economics Papers: this item is included in nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ssrn.com/abstract=2511327 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1459

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().