This dissertation is comprised of two papers. The first paper (Chapter 1) provides the theoretical foundation for the estimation of systematic downside risk. Using a new approach, I derive a measure of downside systematic risk, downside beta, that is free of the endogeneity problem and thus straightforward to calculate. Since there is no consensus in the literature regarding the appropriate method for the estimation of downside beta, I review the alternative specifications proposed in the past. I explicitly show that the derived formula here is more efficient in capturing downside risk on both theoretical grounds and in terms of empirical results. Using this efficient specification of systematic downside risk, I show that downside beta has increased explanatory power towards the cross-section of equity returns as compared to unconditional beta. In particular, downside beta predicts larger and more significant future premia, insignificant intercepts in portfolio cross-section tests and cannot be subsumed by additional risk factors proposed in the past literature. I attribute this superior performance to the ability of downside risk to capture distress risk and to the fact that it does not penalize (reward) good (bad) events in good states. In the second paper (Chapter 2) that is co-authored with my advisor, Gregory Kadlec, we exploit the notion of downside risk to explain a long-withstanding market anomaly; the long-term stock return reversals. We show that downside betas of past losers are significantly greater than downside betas of past winners, and the inclusion of downside beta in Fama-Macbeth regressions subsumes the reversal effect. / Ph. D.

Submitted by Marcos Yoshiro Kawakami (marcos.kawakami@br.bnpparibas.com) on 2012-09-12T22:31:51Z No. of bitstreams: 1 Dissertação - Marcos Kawakami II - V. Final pos banca - ….pdf: 399060 bytes, checksum: d78ebc1a444bdf417b1748e6a6851846 (MD5) / Approved for entry into archive by Suzinei Teles Garcia Garcia (suzinei.garcia@fgv.br) on 2012-09-13T12:40:17Z (GMT) No. of bitstreams: 1 Dissertação - Marcos Kawakami II - V. Final pos banca - ….pdf: 399060 bytes, checksum: d78ebc1a444bdf417b1748e6a6851846 (MD5) / Made available in DSpace on 2012-09-13T13:17:55Z (GMT). No. of bitstreams: 1 Dissertação - Marcos Kawakami II - V. Final pos banca - ….pdf: 399060 bytes, checksum: d78ebc1a444bdf417b1748e6a6851846 (MD5) Previous issue date: 2012-08-15 / The development of financial markets and specially the openness to foreign capital have triggered the development of the corporate governance practices. One of the benefits of the best practice of corporate governance is to reduce the cost of capital of the company. This can generate greater value to the company. This new scenario, the board has an important duty in corporate governance activities, supervise the executive board. This paper investigates if the best practices of corporate governance reduce the risk of companies. Additionally, it analyzes if higher level of education of the board and executive management have impact on the risk. For this, it was adopted the method of least squares to regress the risk, dependent variable, against independent variables: level of corporate governance and education. To calculate the risk we use the methodology presented by Estrada (2007), the downside beta, risk that considers only the negative returns. The study results suggested that a better standard of corporate governance is present in the companies that have an increased risk seen by the market, indicating that companies that need capital, more leveraged firms, are companies that need a higher level of corporate governance. It was also found that firms with higher educational level of the board of directors and executive officers are at higher risk. The companies that need people with more education are companies that want to develop their selves, and therefore riskier. / O desenvolvimento do mercado financeiro e, principalmente, a abertura para o capital externo impulsionaram o desenvolvimento das boas práticas de governança corporativa. Um de seus benefícios é reduzir o custo de captação da empresa e, consequentemente, gerar maior valor para a companhia. Com o novo cenário, o conselho de administração tem um papel fundamental na atividade de governança corporativa, supervisionando a diretoria executiva. O presente trabalho investiga se a adoção de melhores práticas de governança corporativa diminui o risco das empresas. Adicionalmente, analisa se um grau de escolaridade mais alto entre membros do conselho de administração e da diretoria executiva impacta no risco. Para atingir o objetivo, adotou-se o método dos mínimos quadrados para regredir o risco, variável dependente, contra as variáveis independentes nível de governança corporativa e grau de escolaridade. Para o cálculo do risco, utilizaremos a metodologia apresentada por Estrada (2007), o downside beta, ou seja, risco que considera apenas os retornos negativos. Os resultados do estudo sugeriram que um nível de governança corporativa mais alto está presente nas empresas que apresentam um maior risco visto pelo mercado, indicando que as empresas que necessitam de captação, isto é, empresas mais alavancadas, são as empresas que necessitam de um nível de governança corporativa mais alto. Constatou-se, também, que empresas com nível de escolaridade mais alto entre membros do conselho de administração e da diretoria executiva apresentam maiores riscos, pois as empresas que necessitam de pessoas com maior grau de escolaridade são empresas que querem se desenvolver e, portanto, mais arriscadas.