EXPLANATION OF CAPITAL ASSET PRICING MODEL (CAPM) WITH DOWNSIDE RISK IN TSE

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RAEI R.; KHOSRAVI A.R.

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Paper Information

Journal: JOURNAL OF THE FACULTY OF HUMANITIES AND SOCIAL SCIENCES Year:2007 | Volume: | Issue: Page(s): 45-62

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Title

EXPLANATION OF CAPITAL ASSET PRICING MODEL (CAPM) WITH DOWNSIDE RISK IN TSE

Author(s)

RAEI R. | KHOSRAVI A.R. | Issue Writer Certificate

Keywords

CAPITAL ASSET PRICING MODEL (CAPM)Q3

BETA (γ)Q3

SYSTEMATIC RISKQ3

DOWNSIDE RISKQ3

SEMIVARIANCEQ3

Abstract

In the capital asset pricing model (CAPM), Beta (P) is a measure of SYSTEMATIC RISK and explains the assets return differences. CAPM Beta comes from equilibrium in which investors display mean-variance behavior. In other words, from an equilibrium in which investors maximize a utility function that depends on the mean and variance of returns. The variance of returns, however, is a questionable measure of risk for at least two reasons: first, it is an appropriate measure of risk only when the underlying distribution of returns is symmetric. And second, it can be applied straightforwardly as a risk measure only when the underlying distribution of returns is Normal. The semi variance of returns, on the other hand, is a more plausible measure of risk for several reasons: first, investors obviously do not dislike upside volatility; they only dislike downside volatility. Second, the semi variance is more useful than the variance when the underlying distribution of returns is asymmetric and just as useful when the underlying distribution of returns is symmetric; in other words, the semi variance is at least as useful a measure of risk as the variance. This paper investigates the relationship between risk and return by the use of three downside Beta in CAPM.

Cites

SYSTEMATIC RISK ESTIMATION AT DIFFERENT TIME SCALES, BY USING WAVELETS ANALYSIS AN APPLICATION ON TEHRAN STOCK EXCHANGE

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APA: Copy

RAEI, R., & KHOSRAVI, A.R.. (2007). EXPLANATION OF CAPITAL ASSET PRICING MODEL (CAPM) WITH DOWNSIDE RISK IN TSE. JOURNAL OF THE FACULTY OF HUMANITIES AND SOCIAL SCIENCES, 7(26), 45-62. SID. https://sid.ir/paper/389314/en

Vancouver: Copy

RAEI R., KHOSRAVI A.R.. EXPLANATION OF CAPITAL ASSET PRICING MODEL (CAPM) WITH DOWNSIDE RISK IN TSE. JOURNAL OF THE FACULTY OF HUMANITIES AND SOCIAL SCIENCES[Internet]. 2007;7(26):45-62. Available from: https://sid.ir/paper/389314/en

IEEE: Copy

R. RAEI, and A.R. KHOSRAVI, “EXPLANATION OF CAPITAL ASSET PRICING MODEL (CAPM) WITH DOWNSIDE RISK IN TSE,” JOURNAL OF THE FACULTY OF HUMANITIES AND SOCIAL SCIENCES, vol. 7, no. 26, pp. 45–62, 2007, [Online]. Available: https://sid.ir/paper/389314/en

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