Testing postmodern portfolio theory based on global and local single factor market model: Borsa Istanbul case

Yıldız, Mehmet Emin; Erzurumlu, Yaman O.

doi:10.1016/j.bir.2018.03.001

Cited by 5 publications

(5 citation statements)

References 26 publications

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“…Estrada (2006) does not analyze zero-based and risk free-based beta. However, meanbased downside beta (GDB-M) are extensively examined and used (Harvey (2000), Estrada (2000Estrada ( , 2001Estrada ( , 2002Estrada ( , 2003Estrada ( , 2006, Estrada and Serra (2005), Galagedera (2007), Galagedera and Brooks (2007), Collins and Abrahamson (2006) and Yildiz and Erzurumlu (2018)).…”

Section: Risk Measure Modelsmentioning

confidence: 99%

Comparative analyses of mean-variance and mean-semivariance approaches on global and local single factor market model for developed and emerging markets

Yıldız

Erzurumlu

Kurtuluş

2020

IJOEM

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PurposeThe beta coefficient used for the cost of equity calculation is at the heart of the valuation process. This study conducts comparative analyses of the classical capital asset pricing model (CAPM) and downside CAPM risk parameters to gain further insight into which risk parameter leads to better performing risk measures at explaining stock returns.Design/methodology/approachThe study conducts a comparative analysis of 16 risk measures at explaining the stock returns of 4531 companies of 20 developed and 25 emerging market index for 2000–2018. The analyses are conducted using both the global and local indices and both USD and local currency returns. Calculated risk measures are analyzed in a panel data setup using a univariate model. Results are investigated in country-specific and model-specific subsets.FindingsThe results show that (1) downside betas are better than CAPM betas at explaining the stock returns, (2) both risk measure groups perform better for emerging markets, (3) global downside beta model performs better than global beta model, implying the existence of the contagion effect, (4) high significance levels of total risk and unsystematic risk measures further support the shortfall of CAPM betas and (5) higher correlation of markets after negative shocks such as pandemics puts global CAPM based downside beta to a more reliable position.Research limitations/implicationsThe data are limited to the index securities as beta could be time varying.Practical implicationsResults overall provide insight into the cost of equity calculation and emerging market assets valuation.Originality/valueThe framework and methodology enable us to compare and contrast CAPM and downside-CAPM risk measures at the firm level, at the global/local level and in terms of the level of market development.

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Section: Risk Measure Modelsmentioning

confidence: 99%

Comparative analyses of mean-variance and mean-semivariance approaches on global and local single factor market model for developed and emerging markets

Yıldız

Erzurumlu

Kurtuluş

2020

IJOEM

Self Cite

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“…In this study, the main Mainly, this study was designed to test the postmodern theory of portfolio an argued by (Yildiz & Erzurumlu, 2018) that downside risk is a significant explanatory variable and plays an alternative role in explaining asset pricing. Our study has used 100 stocks listed at PSX (KSE-100) from Jan 1, 2005 to Feb 1, 2021.…”

Section: Discussionmentioning

confidence: 99%

“…Annualize the monthly re-turns, making sure the shape characteristics of the distribution are retained. (Yildiz and Erzurumlu, 2018) Therefore, this research is an attempt to study the issue of inducing conditional volatility in an asset valuation model and the prospects of non-linearity. Risky investors and thus need an additional premium to mitigate risky assets.…”

Section: Introductionmentioning

confidence: 99%

“…

This study is aimed to test the validity of the postmodern theory of portfolio with the help of the market-based model, and 100 companies' data has been used for the period 1st Jan, 2005 to 1st Feb, 2021 for listed companies at PSX. The explanatory power of CAPM is tested with the risk measures beta, idiosyncratic risk, semivariance/downside risk (Yildiz & Erzurumlu, 2018) and value at risk (VaR). Results of the GARCH (1,1) model indicates that E(R) DR and E(R) VaR has a significant impact on volatility by adding the-se explanatory measures in the variance equation.

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confidence: 99%

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Testing The Validity of Postmodern Theory of Portfolio from Market Based Model: An Empirical Evidence from Emerging Economy of Pakistan

Rasheed

Hamid

Talha

et al. 2022

IJMRES

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This study is aimed to test the validity of the postmodern theory of portfolio with the help of the market-based model, and 100 companies’ data has been used for the period 1st Jan, 2005 to 1st Feb, 2021 for listed companies at PSX. The explanatory power of CAPM is tested with the risk measures beta, idiosyncratic risk, semivariance/downside risk (Yildiz & Erzurumlu, 2018) and value at risk (VaR). Results of the GARCH (1,1) model indicates that E(R) DR and E(R) VaR has a significant impact on volatility by adding the-se explanatory measures in the variance equation. Whereas risk parameters significantly impact volatility, as shown by adding explanatory measures in the mean equation. The estimated returns and risk indicators of both global and local companies have essential explanatory capacity. In contrast, results suggest that to the MSCI index, the downward market integration is greater, and T-Bill prices may be the dominating factor.

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“…Their findings implied that their 6-factor model using downside beta was a better option for investors to calculate the expected returns of equities compared to the 6-factor model using conventional beta. Yildiz et al (2018) conducted a comparative analysis of the explanatory power of CAPM and DCAPM in Turkey. They employed 22 risk measures based on mean-variance and semi-variance approaches.…”

Section: Msa-management Science Journalmentioning

confidence: 99%

Does downside beta matter in asset pricing? Evidence from the Egyptian Stock Exchange

El Mosallamy,

Yasser

2024

MSA-Management Sciences Journal

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Several scholars pinpointed many predicaments in Sharpe's (1964) beta leading to the introduction of downside framework by Markowitz (1959). Subsequently, later studies investigated downside beta and its effectiveness in developed and developing markets. Egypt, an emerging market, exhibits characteristics such as thin trading, illiquidity, small number of listed firms, and relatively weaker corporate governance enforcement, which impacts its market efficiency. Thus, conventional beta designed and tested in developed markets may fail to account for these unique circumstances that exist in emerging countries as Egypt. This study aims to address this gap in the literature by testing the validity of conventional and downside risk measures using data from 55 Egyptian equity funds from 2012 to 2022. Fama & MacBeth's (1973) two-stage regression was employed. In the first stage, the downside beta was employed using Estrada's (2002) approach. Afterwards, the funds' excess returns over risk-free rate are regressed on the funds' risk measures. Results suggest a slight advantage for downside beta, indicated by a higher adjusted Rsquared. Moreover, a robustness check was employed by dividing the sample into two sub-periods. The findings revealed that the conventional beta is unstable, while downside beta demonstrated consistent and significant results. These empirical findings align with previous studies by Yildiz et al. (2022), Ruthkowska-Ziarko et al. (2022), and Alrabadi et al. (2022.

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Testing postmodern portfolio theory based on global and local single factor market model: Borsa Istanbul case

Cited by 5 publications

References 26 publications

Comparative analyses of mean-variance and mean-semivariance approaches on global and local single factor market model for developed and emerging markets

Comparative analyses of mean-variance and mean-semivariance approaches on global and local single factor market model for developed and emerging markets

Testing The Validity of Postmodern Theory of Portfolio from Market Based Model: An Empirical Evidence from Emerging Economy of Pakistan

Does downside beta matter in asset pricing? Evidence from the Egyptian Stock Exchange

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