Accounting-based CAPM: Symmetrical and downside risk approaches

Abstract

Abstract The complexity of asset return variability justifies supplementing the standard Capital Asset Pricing Model (CAPM) formula with market risk measures based on firms’ fundamental analysis. Moreover, a key area of investigation involves the approach to downside pricing. The main objective of this study is to test non-standard CAPM extensions that incorporate accounting information. The results for the Frankfurt Stock Exchange indicate that profitability ratios constitute a significant source of systematic risk and generate a positive premium related to a company’s financial condition. Furthermore, in the case of large firms, sensitivity measures based on downside accounting betas demonstrate a clear advantage over their conventional counterparts.