Traditional Beta, Downside Risk Beta, and Market Risk Premiums

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CFA Digest
May 2005 | Vol. 35 | No. 2 | 2 pages
Source: CFA Institute
Guy Kaplanski
William A. Trent, CFA (Reviewer)

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Summary

The author develops an asset-pricing model similar to the capital asset pricing model using conditional value at risk (CVAR) as the risk measure rather than standard deviation. Empirical studies demonstrate that the resulting CVAR beta has greater explanatory power than traditional beta, particularly in bearish markets. The author also finds that a combined model using both betas outperforms either stand-alone model.

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