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Robust monitoring of CAPM portfolio betas II

Author

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  • Chochola, Ondřej
  • Hušková, Marie
  • Prášková, Zuzana
  • Steinebach, Josef G.

Abstract

In this work, we extend our study in Chochola et al. [7] and propose some robust sequential procedure for the detection of structural breaks in a Functional Capital Asset Pricing Model (FCAPM). The procedure is again based on M-estimates and partial weighted sums of M-residuals and “robustifies” the approach of Aue et al. [3], in which ordinary least squares (OLS) estimates have been used. Similar to Aue et al. [3], and in contrast to Chochola et al. [7], high-frequency data can now also be taken into account. The main results prove some null asymptotics for the suggested test as well as its consistency under local alternatives. In addition to the theoretical results, some conclusions from a small simulation study together with an application to a real data set are presented in order to illustrate the finite sample performance of our monitoring procedure.

Suggested Citation

  • Chochola, Ondřej & Hušková, Marie & Prášková, Zuzana & Steinebach, Josef G., 2014. "Robust monitoring of CAPM portfolio betas II," Journal of Multivariate Analysis, Elsevier, vol. 132(C), pages 58-81.
    • Handle: RePEc:eee:jmvana:v:132:y:2014:i:c:p:58-81
    DOI: 10.1016/j.jmva.2014.07.016
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    References listed on IDEAS

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    1. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
    2. Zeileis, Achim, 2004. "Econometric Computing with HC and HAC Covariance Matrix Estimators," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 11(i10).
    3. repec:bla:jfinan:v:53:y:1998:i:2:p:549-573 is not listed on IDEAS
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    5. Chochola, Ondřej & Hušková, Marie & Prášková, Zuzana & Steinebach, Josef G., 2013. "Robust monitoring of CAPM portfolio betas," Journal of Multivariate Analysis, Elsevier, vol. 115(C), pages 374-395.
    6. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    7. Aue, Alexander & Hörmann, Siegfried & Horváth, Lajos & Hušková, Marie & Steinebach, Josef G., 2012. "Sequential Testing For The Stability Of High-Frequency Portfolio Betas," Econometric Theory, Cambridge University Press, vol. 28(4), pages 804-837, August.
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