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Ph.D.
(Management)
A STUDY ON DOWNSIDE RISK MEASURES IN ASSET PRICING
MODEL WITH REFERENCE TO EQUITY PORTFOLIO MANAGEMENT

Ph.D. Scholar : Divya Kumari
Research Supervisor : Dr. Abhishek Parikh

Regi. No.: 20276111005
Abstract :
Globally, Investment is driven by Expected returns. As these factors are uncertain and
future-oriented. Through investments, expected returns include a risk allowance
(hicks1939). Risk varies from market to market or security to security. It is to be said that
at any point in time, any asset's market price reflects all the information at ease, and
based on historical prices, the performance of assets cannot be measured due to
behaving randomly. The investor cannot earn abnormal returns through market time or
stock selection when the prices are fair. The CAPM (Capital Assets Pricing theory) model
by Lintner, the most important theory in modern capital market theory, is based on the
above assumption within Markowitz's (1959,1991) mean-variance optimization
framework.

However, CAPM and random walk theory are flawed and criticized. Further, various
models were developed, such as the Fama French three-factor model, the Carhart four-
factor model, the Fama French five-factor model and the six-factor model. After having
various models in hand, they are still investors unable to safeguard themselves during a
crisis. However, this study has included downside risk premium in the asset pricing
model. Various theories have taken place to minimize the risk to investors, but still,
investors cannot maintain their wealth in bearish or downfall conditions. Markowitz
(1959) suggested semi-variance rather than variance to measure risk to avoid that.
However, Chhapra et al. (2019) have depicted that downside beta is a more preferable
and significant method for calculating downside risk premium. Recently, the downside
risk premium has been a highly debated topic in minimizing risk.The downside risk
premium is left-tailed risk, and that will lead to making investors aware while selecting
good stocks. Despite the availability of various well-known theories, investors still
struggle to protect their investments during a crisis. Hence, this study has a Downside
risk based on the proposed four-factor model.

The study identifies and measures the downside risk based on the proposed four- factor
model in developed and developing countries. This study has also shown the importance
of the downside risk premium and the upside risk premium.
The researcher took Daily observations of 9,85,320, Weekly observations of 2,03,320, and

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