Realized semibetas: Disentangling “good” and “bad” downside risks

Tim Bollerslev, Andrew Patton and Rogier Quaedvlieg

Journal of Financial Economics, 2022, vol. 144, issue 1, 227-246

Abstract: We propose a new decomposition of the traditional market beta into four semibetas that depend on the signed covariation between the market and individual asset returns. We show that semibetas stemming from negative market and negative asset return covariation predict significantly higher future returns, while semibetas attributable to negative market and positive asset return covariation predict significantly lower future returns. The two semibetas associated with positive market return variation do not appear to be priced. The results are consistent with the pricing implications from a mean-semivariance framework combined with arbitrage risk driving a wedge between the risk premiums for long and short positions. We conclude that rather than betting against the traditional market beta, it is better to bet on and against the “right” semibetas.

Keywords: Cross-sectional return variation; Downside risk; Semicovariances; Semibetas (search for similar items in EconPapers)
JEL-codes: C58 G11 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:1:p:227-246

DOI: 10.1016/j.jfineco.2021.05.056

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