Journal article
Empirical Analysis of the Intertemporal Relationship between Downside Risk and Expected Returns: Evidence from Time-varying Transition Probability Models
European financial management : the journal of the European Financial Management Association, v 22(5), pp 749-796
01 Nov 2016
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
This paper examines the intertemporal relationship between downside risks and expected stock returns for five advanced markets. Using Value-at-Risk (VaR) as a measure of downside risk, we find a positive and significant relationship between VaR and the expected return before the world financial crisis (September 2008). However, when we estimate the model using a sample after this date, the results show a negative risk-return relationship. Evidence from a two-state Markov regime-switching model indicates that as uncertainty rises, the sign of the risk-return relationship turns negative. Evidence suggests that the Markov regime-switching model helps to resolve the conflicting signs in the risk-return relationship.
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Details
- Title
- Empirical Analysis of the Intertemporal Relationship between Downside Risk and Expected Returns: Evidence from Time-varying Transition Probability Models
- Creators
- Cathy Yi-Hsuan Chen - Chung Hua UniversityThomas C. Chiang - Drexel University
- Publication Details
- European financial management : the journal of the European Financial Management Association, v 22(5), pp 749-796
- Publisher
- Wiley
- Number of pages
- 48
- Grant note
- Marshall M. Austin Chair
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- [Retired Faculty]
- Web of Science ID
- WOS:000388579200001
- Scopus ID
- 2-s2.0-84952360161
- Other Identifier
- 991019167420004721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance