The effort for explaining the relationship between risk and return has a long history in finance. One of the most common models in this field is capital asset pricing model. Most of finance models, including CAPM, are based on the existence assumption of the Mean Variance Behavior, while most of studies have shown that investors are risk neutral for returns which are more than expected returns and risk averse for upper risks and in their utility function loss is more important than benefit. According to this, the purpose of this research is to compare the CAPM explanatory ability with DCAPM. In DCAPM model beta is modified by downside risk and the expected return is estimated by using that.
This research examines the subject by monthly data gathered from 95 companies from 2001 to 2010 in Tehran Stock Exchange, and by using some upside and downside risk measures such as beta and standard deviation. The results show that although the expected return calculated with downside beta can better describe the real return than the expected return calculated with beta, there is no strong evidence for superiority of the downside measures against upside measures. Also, there is no evidence to prove the superiority of portfolio with high downside beta against portfolio with lower downside beta.
Badri, A., & Hashemloo, F. (2013). Investigation of CAPM explanatory ability in comparison with DCAPM. Applied Research in Financial Reporting, 1(1), 107-132.
MLA
Ahmad Badri; Farzaneh Hashemloo. "Investigation of CAPM explanatory ability in comparison with DCAPM". Applied Research in Financial Reporting, 1, 1, 2013, 107-132.
HARVARD
Badri, A., Hashemloo, F. (2013). 'Investigation of CAPM explanatory ability in comparison with DCAPM', Applied Research in Financial Reporting, 1(1), pp. 107-132.
VANCOUVER
Badri, A., Hashemloo, F. Investigation of CAPM explanatory ability in comparison with DCAPM. Applied Research in Financial Reporting, 2013; 1(1): 107-132.
