Is co-skewness a better measure of risk in the downside than downside beta?: Evidence in emerging market data

We define three measure of systematic co-skewness risk in a downside framework by extending three downside beta risk measures in the literature. In pricing models in a downside framework it may be sufficient to include a risk measure that accounts for co-semi-variance or co-semi-skewness and not both. Downside risk is appropriate when returns distribution is skewed—a common feature in emerging markets. A cross-sectional analysis provides evidence that downside co-skewness is a better explanatory variable of emerging market monthly returns than downside beta. Our conclusions remain largely unchanged when the analysis is subjected to various robustness checks.