The development of downside accounting beta as a measure of risk

Abstract

This paper develops a new method for measuring market risk called downside accounting beta (DAB). To test the validity of DAB the method is applied to the financial data for 14 food companies listed on the Warsaw Stock Exchange during a 6-year period. DAB calculates how changes in the profitability of the whole sector affects the profitability of a given company. The paper concludes that when calculating DAB using Return on Assets (ROA) and Return on Equity (ROE) there is a positive
correlation with market betas. The practical implication of this research is that investors, owners and managers can use DAB to calculate the systematic risk of companies not listed on stock markets and consequently to identify the levels of risk associated
with companies within the sector.