Economic Significance of Downside Risk in Developed and Emerging Markets

This chapter seeks to elucidate the relations of U.S.-listed global commodity futures, the business cycle, and stocks and bonds of emerging markets. It shows that global investors poised to benefit from investing in emerging market securities can concurrently learn from and better understand the dynamic intermarket relations when establishing such trading strategies. Investment in emerging markets can enhance the performance and sturdiness of an equity or bond portfolio strategy. Evidence lends support to the conjecture that a subtle contemporaneous and occasionally trailing effect exerted by the movement of global commodities on the business cycle exists. Global commodities also affect equity and bond market dynamics. The evidence also reveals differences in terms of economic significance and magnitude among selected emerging nations and across various commodities.

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Downside Risk in Emerging Markets

Emerging Markets Finance and Trade ◽

10.2753/ree1540-496x490306 ◽

2013 ◽

Vol 49 (3) ◽

pp. 65-83 ◽

Cited By ~ 11

Author(s):

Yigit Atilgan ◽

K. Ozgur Demirtas

Keyword(s):

Emerging Markets ◽

Downside Risk

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Effects of ownership structure on the relationship between multinationality and downside risk

Cross Cultural & Strategic Management ◽

10.1108/ccsm-10-2018-0172 ◽

2019 ◽

Vol 26 (3) ◽

pp. 401-421

Author(s):

Chao Zhou

Keyword(s):

Emerging Markets ◽

Real Options ◽

Ownership Structure ◽

Emerging Market ◽

Downside Risk ◽

Publicly Traded ◽

Data Set ◽

Content Type ◽

Real Options Theory ◽

The Relationship

Purpose The purpose of this paper is to explore how multinationality affects multinational companies’ (MNCs) downside risk and the moderate effects of ownership structure in the setting of emerging markets based on Chinese publicly traded manufacturing MNCs. Design/methodology/approach The author derives hypotheses based on real options theory and agency theory, and tests hypotheses by using Tobit model and a unique data set of Chinese A-shared publicly traded manufacturing MNCs in the period of 2010–2016. Findings The empirical results suggest that multinationality is positively related to downside risk and this effect is subjected to ownership structure for firms in emerging markets. In particular, multinationality of MNCs with a high level of ownership concentration, managerial ownership and institutional ownership is more likely to reduce downside risk. Practical implications The main conclusion of this paper highlights the importance of ownership structure of MNCs in explaining the real options value of multinationality, and conveys to owners of MNCs in China and other emerging markets the need to strengthen firms’ governance if they want to maximize the benefits of multinational operations. Originality/value This study extends existing studies by taking ownership structure into consideration and highlighting the importance of agency problem in the examination of multinationality and downside risk, which provides a potential explanation for previous mixed evidence. This study also provides new evidence for the relationship between multinationality and downside risk by using a unique sample from China, an emerging market country.

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The relevance of emerging markets in portfolio diversification: Analysis in a downside risk framework

Journal of Asset Management ◽

10.1057/jam.2012.5 ◽

2012 ◽

Vol 13 (3) ◽

pp. 162-169 ◽

Cited By ~ 1

Author(s):

S S S Kumar

Keyword(s):

Emerging Markets ◽

Downside Risk ◽

Portfolio Diversification ◽

Risk Framework

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The Impact of Downside Risk on Expected Return: Evidence from Emerging Economies

Lahore Journal of Business ◽

10.35536/ljb.2019.v8.i1.a5 ◽

2019 ◽

Vol 8 (1) ◽

pp. 91-106

Author(s):

Hassan Raza ◽

Arshad Hasan ◽

Abdul Rashid

Keyword(s):

Emerging Markets ◽

Emerging Economies ◽

Stock Markets ◽

Explanatory Power ◽

Downside Risk ◽

Expected Return ◽

Risk And Return ◽

Emerging Stock Markets ◽

High Volatility ◽

The Impact

This paper investigates the comparative relationship between the downside risk adjusted CAPM and traditional CAPM. The premise of the traditional CAPM is that the expected return is based on the incidence of systematic risk (beta), which has been assumed to be homogenous for both the developed, and the emerging stock markets. However, empirical results are not aligned with this assumption, as the basic risk and return relationship happens to be negative, and insignificant in the case of emerging markets. This may be due to the emerging stock markets’ distinct characteristics (i.e. high volatility, low liquidity, and less availability of historical data). To deal with the said issue, extent literature supports the use of the semi-variance methodology (SV-M) for emerging markets, instead of the mean-variance (M-V) method. Therefore, this study referred to the Fama and Macbeth (1973) methodology that was applied over monthly data ranging from June, 2000 to June, 2018. Results indicate that there is a positive relationship between the risks (downside and traditional beta) and the expected return. Moreover, results also reveal that downside risk has more significance and explanatory power as compared to the traditional beta. Hence, as per the above findings, the study suggests using the semi-variance methodology for the calculation of the expected returns in emerging economies. However, the significance of the residuals, and beta square terms in both methodologies clearly indicate that there is a need to adjust and incorporate more risk factors, as well as an element of non-linearity while arriving at a probable risk and return relationship.

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