The Impact of Asymmetric Risk on Expected Return

Maryam Davallou () and Mostafa Sadrynia ()
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Maryam Davallou : Shahid Beheshti University
Mostafa Sadrynia : University of Economic Science

Journal of Money and Economy, 2016, vol. 11, issue 1, 1-13

Abstract: The main goal of the present study is testing asymmetric risk pricing and comparing it with pricing of traditional risk measures in Tehran Stock Market. Accordingly, a sample consisting of 101 companies listed in Tehran Stock Market during 2002-2013 went under investigation. In order to test asymmetric risk pricing, regression model of panel data was applied. The results revealed a positive and significant relationship between traditional measures (Standard Deviation and Semi Standard Deviation) and asymmetric risk measures (parametric VaR, HR risk, historical VaR, and historical HR) and expected return. Therefore, in addition to the significant correlation between risk and return, pricing model based on asymmetric risk and traditional risk was approved, too. Again, it was shown that controlling the effect of variables such as financial leverage, firm size, book-to-market ratio of equity (B/M) and liquidity, momentum and inverse is not able to change the direction of the relationship. Furthermore, the explanatory power of traditional and asymmetric risk criteria are the same.

Keywords: Asymmetric risk; Traditional risk; Expected return (search for similar items in EconPapers)
JEL-codes: G10 G17 (search for similar items in EconPapers)
Date: 2016
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