Downside Risk and the Momentum Effect

Andrew Ang, Joseph Chen and Yuhang Xing

No 8643, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Stocks with greater downside risk, which is measured by higher correlations conditional on downside moves of the market, have higher returns. After controlling for the market beta, the size effect and the book-to-market effect, the average rate of return on stocks with the greatest downside risk exceeds the average rate of return on stocks with the least downside risk by 6.55% per annum. Downside risk is important for explaining the cross-section of expected returns. In particular of the profitability of investing in momentum strategies can be explained as compensation for bearing high exposure to downside risk.

JEL-codes: C12 C15 (search for similar items in EconPapers)
Date: 2001-12
New Economics Papers: this item is included in nep-cfn and nep-fmk
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Ang, Andrew, Joe Chen and Yuhang Xing. “Downside Risk." Review of Financial Studies 19 (2006): 1191-1239.

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