Downside Risk is the financial risk associated with loss. That is, it is the risk of actual returns below the expected result, or the uncertainty about the magnitude of the difference.
Risk measures typically measure downside risk, whereas standard deviation (eg measure of risk of deviation) measures both upside and downside risks. In particular, the risk of decline can be measured with lower beta or by measuring semi-low deviations. Statistics under the semi-deviation target or just semi-deviation targets (TSV) have become industry standards.
Video Downside risk
Histori
The downside risk was first modeled by Roy (1952), who assumed that the investor's goal was to minimize the risks. This means-semivariance, or downside risk, a model also known as "safety-first" technique, and only sees a standard deviation lower than expected return which is a potential loss. It is about the same time Harry Markowitz developed the theory of mean-variance. Even Markowitz, himself, states that "semi-variance is a more sensible measure of risk" than the theory of its mean variance. Then in 1970, several focus groups were conducted in which executives from eight industries were asked about their definition of risk that produced a semi-variant as a better indicator of regular variance. Then, through the theoretical analysis of the market value of capital, Hogan and Warren show that the 'fundamental structure of the capital-price pricing model is maintained when the standard semideviation is replaced for the standard deviation to measure portfolio risk'. '' This suggests that CAPM can be modified by combining beta downside, which measures downside risk, in lieu of regular beta to properly reflect what people perceive as risk. Since the early 1980s, when Dr. Frank Sortino developed a formal definition of downside risk as a better measure of investment risk than standard deviation, downside risk has become the industry standard for risk management.
Maps Downside risk
Decrease risk vs capital asset pricing model
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