Semivariance decomposition of country-level returns

Authors

Steven L. Beach, University of Texas Permian Basin

Document Type

Article

Publication Date

10-2011

Abstract

A methodology for decomposing the below-mean semivariance into systematic and unsystematic components is introduced. The decomposition of variance and semivariance of asset returns is presented for forty-four country-level indexes. The proportion of risk explained for country-level returns in the Downside CAPM framework is higher than in the CAPM framework. On average for all markets, global systematic risk, as a proportion of total risk, is 42% in the CAPM and 56% in the Downside CAPM. A strong role for semivariance and downside beta is found in explaining the cross-section of country returns. Although skew is highly correlated to semivariance, no cross-sectional confirmation of the role of skew as a priced risk or in explaining the downside risk is identified.

Recommended Citation

Steven L. Beach, Semivariance decomposition of country-level returns, International Review of Economics & Finance, Volume 20, Issue 4, 2011, Pages 607-623, ISSN 1059-0560, https://doi.org/10.1016/j.iref.2011.01.004.