A New Method for Evaluating a Portfolio’s Downside Risk

$25.00

We introduce a measure of downside risk which estimates a portfolio’s exposure to short-term, market-wide price declines in equity markets. We examine our measure in the context of three major stock market downturns and find that (a) there is a wide dispersion in equity funds’ reactions to downturns and (b) the measure predicts funds’ reactions up to nine months ahead.

Charles Gabriel, EMA Softech
Andrew Lawson, Ph.D., EMA Softech
Mark Huamani, JPMorgan

We introduce a measure of downside risk which estimates a portfolio’s exposure to short-term, market-wide price declines in equity markets. We examine our measure in the context of three major stock market downturns and find that (a) there is a wide dispersion in equity funds’ reactions to downturns and (b) the measure predicts funds’ reactions up to nine months ahead.

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