"Liability-Driven Investment with Downside Risk" in the Journal of Portfolio Management Fall 2013, Vol. 40, No. 1: pp. 71-87 …

place greater weight on downside risk demand additional compensation for holding stocks with high sensitivities to downside … market movements. We show that the cross-section of stock returns reflects a premium for downside risk. Specifically, stocks … that covary strongly with the market when the market declines have high average returns. We estimate that the downside risk …

Stocks with greater downside risk, which is measured by higher correlations conditional on downside moves of the market … of return on stocks with the greatest downside risk exceeds the average rate of return on stocks with the least downside … risk by 6.55% per annum. Downside risk is important for explaining the cross-section of expected returns. In particular of …

-varying opportunity sets, but unless investors are unreasonably risk averse, optimal holdings include unreasonably large equity positions …

the regimes are small for moderate levels of risk aversion, and the intertemporal hedging demands induced by time …

asset cannot be traded for intervals of uncertain duration. Illiquidity leads to increased and state-dependent risk aversion …

of the other variables. Our relations are useful for understanding the risk-return trade-off, as well as characterizing …