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Type: Journal article
Title: Average drawdown risk and capital asset pricing
Author: Baghdadabad, M.
Glabadanidis, P.
Citation: Review of Pacific Basin Financial Markets and Policies, 2013; 16(4):1-21
Publisher: World Scientific Publishing Co. Pte. Ltd.
Issue Date: 2013
ISSN: 0219-0915
Statement of
Mohammad Reza Tavakoli Baghdadabad and Paskalis Glabadanidis
Abstract: Practitioners and academics have spent the past few decades debating the validity and relevance of the capital asset pricing model (CAPM). One of the attributes of the model is an estimate of risk by beta, which in equilibrium describe the behavior of mean-variance (MV) investors. In the MV framework, risk is measured by the variance of returns which is a questionable and restrictive risk measure. In contrast, the average drawdown risk is a more acceptable risk measure and can be applied to modeling an alternative behavioral hypothesis, namely mean-drawdown behavior with a replacement risk measure for diversified investors, the average drawdown beta leading to an alternative pricing model based on this beta. Our findings clearly support the average drawdown beta and the pricing model of average drawdown CAPM versus the conventional beta and CAPM in a sample of Malaysian mutual funds.
Keywords: Mean-variance behavior
mean-drawdown behavior
drawdown risk measure
average drawdown risk measure
average drawdown beta
average drawdown CAPM
Rights: Copyright status unknown
DOI: 10.1142/S0219091513500288
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