Downside Risk and Stock Returns: The Case of Amman Stock Exchange
Keywords:
Downside risk, Upside risk, Stock return, Systematic risk, Fama and French (1993), CAPM, SMB, HML, Amman Stock ExchangeAbstract
1 Professor of Finance, Department of Finance and Banking Sciences, Faculty of Economics and Business Administration Sciences, Yarmouk University, Jordan. dhws2004@yahoo.co.uk. (Corresponding author).
2 Assistant Professor, Department of Financial Economics, Faculty of Economics and Administrative Sciences, Yarmouk University, Jordan.
3 Associate Professor of Finance, Al-Balqa University, Jordan.
4 Master in Finance and Banking Sciences, Yarmouk University, Jordan.
Received on 15/11/2019 and Accepted for Publication on 19/10/2020.
This study investigates the effect of downside risk on stock return. In specific, we augment downside risk mimicking factor into both the Capital Assets Pricing Model (CAPM) and the three factor model of Fama and French (1993). The study uses daily data over the period (2013-2017) for a sample consisting of 92 companies listed in Amman Stock Exchange (ASE). Using panel regressions, results show that there is a statistically significant positive effect of downside risk on stock returns in ASE, thus the downside risk represents a source of systematic risk. In contrast, results indicate that there is no statistically significant effect of upside risk on stock returns. Moreover, a statistically significant effect of market risk premium, Small Minus Big (SMB) and High Minus Low (HML) is found on the stock return.
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