This paper compares conventional risk measures operation (Beta, Sharpe ratios and Trey nor indices) with downside risk measures operation (Down Beta, Down Sharpe ratios and Down trey nor indices) to present alternative measures for risk based on some models in order to evaluate risk in forecasting the excess returns of individual stocks in Tehran Stock Exchange and is heading to replace the conventional CAPM model with a suited model or a Sharpe-based and Trey nor -based models.
In financial literature, there have been various assumptions about concept of risk and it's measures. Modern financial theories are based on Markowitz's portfolio selection model, then, they all rely on the assumption of mean-variance behavior in the market. This measure of risk has been questioned by Roy and Markowitz and they have advocated of downside risk measures. Therefore, based on the gathered data, from 32listed companies in Tehran Stock Exchange, their monthly returns are calculated as a base for our tests. Relying on financial literature, two separated definition and two kinds of conventional and downside risk measures are presented and tested for evaluating risk.
Results show that Down Beta and Down Trey nor indices are better than their conventional measures (Beta and Trey nor indices) in forecasting the excess returns of individual stocks, also Sharpe ratio which is a conventional risk measure, is a more accurate measure than Down Sharpe ratio in forecasting the excess returns of individual stocks.