From Regular-Beta Capm to Downside-Beta Capm Essay

Euro Journal of Social Sciences – Volume level 21, Second seed (2011)

Via Regular-Beta CAPM to Downside-Beta CAPM

Qaiser Abbas

Corresponding Author, Mentor Department of Management Sciences COMSATS Institute of Information Technology Chak Shahzad, Park Street, Islamabad

Email-based: [email protected] edu. pk

Usman Ayub

Assistant Professor and PhD Scholar COMSATS Institute of Information Technology Chak Shahzad, Park Street, Islamabad

Email: [email protected] edu. pk

Shahid Mehmmod Sargana

Assistant Mentor, COMSATS Start of Information Technology Chak Shahzad, Park Street, Islamabad

Syed Kashif Saeed

PhD College student, COMSATS Commence of Information Technology

Chak Shahzad, Park Street, Islamabad


CAPM comes a long way and has passed the time-test and finally is fast coming out as a winner regardless of the onslaught of both, APT and multi-factor CAPM. To put it succinctly that CAPM is needed, devils delight. If so , it does not mean that CAPM keeps as " CAPM”. Drawback risk in recent times has captured the sight of experts. Downside-beta CAPM (DCAPM) depending on downside risk is being thought a fast replacement to CAPM. It records almost all the features of CAPM but let goes circumstances of normality and investor's preference of both benefit and disadvantage risk. With evidence putting in via all areas of the world especially from emerging market segments, that DCAPM and its distinct modified types outperforms CAPM, it seems that DCAPM is long-awaited solution for asset prices problem.

Keywords: CAPM, anomalies, DCAPM, Benefit at Risk (VaR).

Section I: Introduction

The paper can be one of its varieties that makes their journey back in history with the inception of CAPM and concludes with Downside-beta CAPM (DCAPM) based on downside risk, bringing the two worlds with each other. At least to our knowledge, CAPM and DCAPM have not been discussed together at wonderful length, in one paper. The paper primarily focuses on empirical evidence intended for and against CAPM. Although these evidences are reviewed in many paperwork but this paper categorizes the critique which makes it less difficult for viewers to retain it. As considered by many, CAPM is still a solution in asset pricing in whose acceptability and worldwide usage cannot be conveniently discarded. Thus relying on a similar theoretical basis of CAPM, apart from the condition of normality and investor's preference of both upside and downside risk, DCAPM comes to recovery with hard evidence. Evidence of DCAPM both coming from developed and emerging markets is mentioned in this paper. The daily news also examines the revised versions of both CAPM and DCAPM, incorporating bigger moments and time-varying betas. 189

Western Journal of Social Savoir – Volume 21, Second seed (2011) The paper is definitely divided into several sections. The first section gives an intro while second section shows a brief intro of CAPM covering primarily the empirical arena of CAPM. Initially, evidence in favour of CAPM has and then the onslaught about CAPM is usually discussed. The criticism in CAPM is definitely divided into three major groups. As a deliverer, downside risk is brought in and CAPM is changed into DCAPM. Third section depends on the summary of downside risk and eventually ends up with evidence of DCAPM worldwide with emphasis on emerging markets. Finally, next section is definitely conclusion and additional recommendations.

Section II. I actually: Introduction to CAPM

Capital Property pricing Unit (CAPM)1 is among the most, theoretically and empirically, discussed topics in the discipline of economics and financing. Although it cannot be called an empirical achievement, it's without effort brevity offers provided that a special put in place literature of economics and finance. Due to above mentioned attributes; it is widely used2 asset prices model. Its simplicity and cost-effectiveness causes it to be superior to both equally multi-factor and arbitrage types. Although there will be no prices in graph-only risk and returning, still it truly is called a ‘pricing model' since it can be used to help us...

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Western european Journal of Social Sciences – Amount 21, Number 2 (2011)


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