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Downside Correlation And Expected Stock Returns
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Book Synopsis Downside Correlation and Expected Stock Returns by : Andrew Ang
Download or read book Downside Correlation and Expected Stock Returns written by Andrew Ang and published by . This book was released on 2011 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: If investors are more averse to the risk of losses on the downside than of gains on the upside, investors ought to demand greater compensation for holding stocks with greater downside risk. Downside correlations better capture the asymmetric nature of risk than downside betas, since conditional betas exhibit little asymmetry across falling and rising markets. We find that stocks with high downside correlations with the market, which are correlations over periods when excess market returns are below the mean, have high expected returns. Controlling for the market beta, the size effect, and the book-to-market effect, the expected return on a portfolio of stocks with the greatest downside correlations exceeds the expected return on a portfolio of stocks with the least downside correlations by 6.55% per annum. We find that part of the profitability of investing in momentum strategies can be explained as compensation for bearing high exposure to downside risk.
Book Synopsis Expected Stock Returns and the Correlation Risk Premium by : Adrian Buss
Download or read book Expected Stock Returns and the Correlation Risk Premium written by Adrian Buss and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Extreme Downside Risk and Expected Stock Returns by : Wei Huang
Download or read book Extreme Downside Risk and Expected Stock Returns written by Wei Huang and published by . This book was released on 2012 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a measure for extreme downside risk (EDR) to investigate whether bearing such a risk is rewarded by higher expected stock returns. Constructing an EDR proxy with the left tail index in the classical generalized extreme value distribution, we document a significantly positive premium on firm-specific EDR in cross-section of stock returns even after controlling for market, size, value, momentum, and liquidity effects. The EDR premium is more prominent among glamour stocks and when high market returns are expected. High-EDR stocks generally have high idiosyncratic risk, large downside beta, lower coskewness and cokurtosis, and high bankruptcy risk. The EDR premium persists after these characteristics are controlled for. EDR is also closely related to firm-specific Value at Risk (VaR) which substantially impacts EDR's effect on expected stock returns. EDR supplements VaR in predicting stock returns by exhibiting additional explanatory power.
Book Synopsis Asset Allocation, Performance Measurement and Downside Risk by : Alexandra Elisabeth Janovsky
Download or read book Asset Allocation, Performance Measurement and Downside Risk written by Alexandra Elisabeth Janovsky and published by diplom.de. This book was released on 2001-03-26 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Abstract: Investors should not and in fact do not hold a single asset, they hold groups or portfolios of assets. An important aspect in portfolio theory is that the risk of a portfolio is more complex than the risk of its components. It depends on how much the assets represented in the portfolio move together, that is, on the correlation between the single assets. In portfolio theory, there are several definitions of risk: First of all, the Capital Asset Pricing Model (CAPM) relies on the beta factor of an asset relative to the market as a measure for the asset s risk. On the other hand, also downside risk can be used in order to determine a portfolio s risk. The kind of risk in question is market risk, which is the risk of losses arising from adverse movements in market prices or rates. Market risk can be subdivided into interest rate risk, equity price risk, exchange rate risk and commodity price risk. For many investment decisions, there is a minimum return that has to be reached in order to meet different criteria. Returns above this minimum acceptable return ensure that these goals are reached and thus are not considered risky. Standard deviation captures the risk associated with achieving the mean, while downside risk assumes that only those returns that fall below the minimal acceptable return incur risk. One has to distinguish between good and bad volatility. Good volatility is dispersion above the minimal acceptable return, the farther above the minimal acceptable return, the better it is. One way of measuring downside risk is to consider the shortfall probability or chances of falling below the minimal acceptable return. Another possibility is measuring downside variance, i.e. variance of the returns falling below the minimal acceptable return. As a consequence, downside variance is very sensitive to the estimate of the mean of the return function, while standard deviation does not suffer from this problem. Thus the calculation of downside deviation is more difficult than the calculation of standard deviation. The quality of the calculation also depends on the choice of differencing interval of the time series. The calculation of downside risk assumes that financial time series follow either a normal or lognormal distribution. Finally, there is no universal risk measure for the many broad categories of risk. For example, standard deviation captures the risk of not achieving the mean, beta captures the risk of investing [...]
Book Synopsis Empirical Asset Pricing by : Turan G. Bali
Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Book Synopsis Volatility and Time Series Econometrics by : Mark Watson
Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics
Book Synopsis Asymmetric Dependence in Finance by : Jamie Alcock
Download or read book Asymmetric Dependence in Finance written by Jamie Alcock and published by John Wiley & Sons. This book was released on 2018-06-05 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: Avoid downturn vulnerability by managing correlation dependency Asymmetric Dependence in Finance examines the risks and benefits of asset correlation, and provides effective strategies for more profitable portfolio management. Beginning with a thorough explanation of the extent and nature of asymmetric dependence in the financial markets, this book delves into the practical measures fund managers and investors can implement to boost fund performance. From managing asymmetric dependence using Copulas, to mitigating asymmetric dependence risk in real estate, credit and CTA markets, the discussion presents a coherent survey of the state-of-the-art tools available for measuring and managing this difficult but critical issue. Many funds suffered significant losses during recent downturns, despite having a seemingly well-diversified portfolio. Empirical evidence shows that the relation between assets is much richer than previously thought, and correlation between returns is dependent on the state of the market; this book explains this asymmetric dependence and provides authoritative guidance on mitigating the risks. Examine an options-based approach to limiting your portfolio's downside risk Manage asymmetric dependence in larger portfolios and alternate asset classes Get up to speed on alternative portfolio performance management methods Improve fund performance by applying appropriate models and quantitative techniques Correlations between assets increase markedly during market downturns, leading to diversification failure at the very moment it is needed most. The 2008 Global Financial Crisis and the 2006 hedge-fund crisis provide vivid examples, and many investors still bear the scars of heavy losses from their well-managed, well-diversified portfolios. Asymmetric Dependence in Finance shows you what went wrong, and how it can be corrected and managed before the next big threat using the latest methods and models from leading research in quantitative finance.
Book Synopsis Asymmetric Correlation of Stock Portfolios by : Thorben Andresen
Download or read book Asymmetric Correlation of Stock Portfolios written by Thorben Andresen and published by . This book was released on 2010 with total page 173 pages. Available in PDF, EPUB and Kindle. Book excerpt: Construction can incorporate downside correlation by optimizing either on downside variance or on the utility of a loss-averse investor. For asset pricing, downside beta or a downside correlation factor can be used to explain variation across stock returns due to correlation asymmetry. We evaluate the impact of different calculation choices on our statistical methods. While these choices have a low impact on the H-statistics, the symmetry test is less robust. The results of the symmetry test should therefore be considered with some criticism.
Book Synopsis Tail-based Co-movement Measures Using the Expected Shortfall by : Jinjing Liu
Download or read book Tail-based Co-movement Measures Using the Expected Shortfall written by Jinjing Liu and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "Assets tend to fall together when the market declines. This thesis focuses on using the expected shortfall (ES) to improve the characterization of the co-movement between assets when returns are low. As a measure of the average loss under extreme circumstances, the ES is used widely in risk management; however, there is little literature applying the ES to characterize the relationship between assets. In Chapter 2, I develop a correlation measure based on the ES to estimate the dependence between assets conditional on different quantiles of returns, and propose a series of statistics to measure and test the degree that correlation increases when returns are low. The test statistics suggest that the traditional linear correlation significantly underestimates the dependence between the US and the other G7 countries when returns are low. In Chapter 3, I develop a downside beta, again based on the ES, to estimate the covariation between asset returns and market returns when the market declines. This downside beta substantially improves the prediction of expected returns of stocks listed on the NYSE, AMEX, and NASDAQ. Chapter 4 adopts the downside beta based on the ES to interpret the abnormally high returns observed at the beginning of the year using Chinese data. Instead of a January premium, the Chinese stock market exhibits a February premium. This chapter shows that the February premium is stronger for small-cap stocks, illiquid stocks, and stocks with high downside risk and low price." --
Download or read book Volatility written by Robert A. Jarrow and published by . This book was released on 1998 with total page 472 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Book Synopsis Extreme Correlation of International Equity Markets by : François M. Longin
Download or read book Extreme Correlation of International Equity Markets written by François M. Longin and published by . This book was released on 2000 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Trading Volume and Serial Correlation in Stock Returns by : John Y. Campbell
Download or read book Trading Volume and Serial Correlation in Stock Returns written by John Y. Campbell and published by . This book was released on 1992 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the relationship between stock market trading volume and the autocorrelations of daily stock index returns. The paper finds that stock return autocorrelations tend to decline with trading volume. The paper explains this phenomenon using a model in which risk-averse "market makers" accommodate buying or selling pressure from "liquidity" or "non-informational" traders. Changing expected stock returns reward market makers for playing this role. The model implies that a stock price decline on a high-volume day is more likely than a stock price decline on a low-volume day to be associated with an increase in the expected stock return.
Book Synopsis Increased Correlation in Bear Markets by : Rachel Campbell
Download or read book Increased Correlation in Bear Markets written by Rachel Campbell and published by . This book was released on 2002 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Cointegration, Causality, and Forecasting by : Halbert White
Download or read book Cointegration, Causality, and Forecasting written by Halbert White and published by Oxford University Press, USA. This book was released on 1999 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: A collection of essays in honour of Clive Granger. The chapters are by some of the world's leading econometricians, all of whom have collaborated with and/or studied with both) Clive Granger. Central themes of Granger's work are reflected in the book with attention to tests for unit roots and cointegration, tests of misspecification, forecasting models and forecast evaluation, non-linear and non-parametric econometric techniques, and overall, a careful blend of practical empirical work and strong theory. The book shows the scope of Granger's research and the range of the profession that has been influenced by his work.
Book Synopsis Downside Risk and Stock Returns by : Cathy Chen
Download or read book Downside Risk and Stock Returns written by Cathy Chen and published by . This book was released on 2016 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a fractionally cointegrated vector autoregression (FCVAR) model to examine various relations between stock returns and downside risk. Evidence from major advanced markets supports the notion that downside risk measured by value-at-risk (VaR) has significant information content that reflects lagged long-run variance and higher moments of risk for predicting stock returns. The evidence supports the positive tradeoff hypothesis and the leverage effect in the long run and for some markets in the short run. We find that US downside risk accounts for 54.36% of price discovery, whereas the own effect from the country itself contributes only 27.06%.
Book Synopsis Downside Risk and the Momentum Effect by : Andrew Ang
Download or read book Downside Risk and the Momentum Effect written by Andrew Ang and published by . This book was released on 2010 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Portfolio Returns by : Ojwang Omondi
Download or read book Portfolio Returns written by Ojwang Omondi and published by . This book was released on 2014 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment in the financial markets is guided by the trade-off between expected returns and risk appetite of the investor. Higher risks could possibly result in higher expected return on the upside risk but the possibility of massive downside risk of loss must never escape the investor. The dynamic market condition should shape an investor's macro-economic perception with a view to taming the market but not to beat the market for the latter is a herculean and elusive task to undertake. Portfolio theory draws from the theory of the firm only that the former deals with investors both rational and irrational with a view to optimal asset mix in a diversified portfolio subject to future uncertainty. Models have been developed to analyze economic equilibrium in the face of optimizing investors including CAPM and APT an analysis of which forms the basis of this paper with a brief look on portfolio performance.
