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Autoregressive conditional beta

Author

Listed:
  • Yunmi Kim

    (Department of Economics, Kookmin University, Korea)

Abstract

The capital asset pricing model provides various predictions about equilibrium expected returns on risky assets. One key prediction is that the risk premium on a risky asset is proportional to the nondiversifiable market risk measured by the asset's beta coefficient. This paper proposes a new method for estimating and drawing inferences from a time-varying capital asset pricing model. The proposed method, which can be considered a vector autoregressive model for multiple beta coefficients, is different from existing time-varying capital asset pricing models in that the effects of an exogenous variable on an asset's beta coefficient can be unambiguously determined and the codependence between the beta coefficients of individual assets can be measured and estimated.

Suggested Citation

  • Yunmi Kim, 2012. "Autoregressive conditional beta," Economics Bulletin, AccessEcon, vol. 32(2), pages 1489-1494.
    • Handle: RePEc:ebl:ecbull:eb-12-00101
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I2-P143.pdf
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    References listed on IDEAS

    as
    1. Robert W. Faff & David Hillier & Joseph Hillier, 2000. "Time Varying Beta Risk: An Analysis of Alternative Modelling Techniques," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(5‐6), pages 523-554, June.
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    3. Koutmos, Gregory & Lee, Unro & Theodossiu, Panayiotis, 1994. "Time-varying betas and volatility persistence in International Stock markets," Journal of Economics and Business, Elsevier, vol. 46(2), pages 101-112, May.
    4. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    5. Akdeniz Levent & Altay-Salih Aslihan & Caner Mehmet, 2003. "Time-Varying Betas Help in Asset Pricing: The Threshold CAPM," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(4), pages 1-18, March.
    6. Robert W. Faff & David Hillier & Joseph Hillier, 2000. "Time Varying Beta Risk: An Analysis of Alternative Modelling Techniques," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(5‐6), pages 523-554, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capital Asset Pricing Model; Beta Coefficient; Autoregressive Model;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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