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Goodness-of-Fit versus Significance: A CAPM Selection with Dynamic Betas Applied to the Brazilian Stock Market

Author

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  • André Ricardo de Pinho Ronzani

    (FUNCEF—Fundação dos Economiários Federais, SCN Qd. 2 Bl. A—13° andar Corporate Center, Brasilia-DF 70712-900, Brazil)

  • Osvaldo Candido

    (Graduate School in Economics, Catholic University of Brasilia, SGAN 916, Module B., Brasilia-DF 70790-160, Brazil)

  • Wilfredo Fernando Leiva Maldonado

    (Graduate School in Economics, Catholic University of Brasilia, SGAN 916, Module B., Brasilia-DF 70790-160, Brazil)

Abstract

In this work, a Capital Asset Pricing Model (CAPM) with time-varying betas is considered. These betas evolve over time, conditional on financial and non-financial variables. Indeed, the model proposed by Adrian and Franzoni (2009) is adapted to assess the behavior of some selected Brazilian equities. For each equity, several models are fitted, and the best model is chosen based on goodness-of-fit tests and parameters significance. Finally, using the selected dynamic models, VaR (Value-at-Risk) measures are calculated. We can conclude that CAPM with time-varying betas provide less conservative VaR measures than those based on CAPM with static betas or historical VaR.

Suggested Citation

  • André Ricardo de Pinho Ronzani & Osvaldo Candido & Wilfredo Fernando Leiva Maldonado, 2017. "Goodness-of-Fit versus Significance: A CAPM Selection with Dynamic Betas Applied to the Brazilian Stock Market," IJFS, MDPI, vol. 5(4), pages 1-21, December.
    • Handle: RePEc:gam:jijfss:v:5:y:2017:i:4:p:33-:d:121563
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    References listed on IDEAS

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    Cited by:

    1. Jian Huang & Huazhang Liu, 2019. "Examination and Modification of Multi-Factor Model in Explaining Stock Excess Return with Hybrid Approach in Empirical Study of Chinese Stock Market," JRFM, MDPI, vol. 12(2), pages 1-30, May.
    2. Muhammad Adnan Arshad & Saira Munir & Bashir Ahmad & Muhammad Waseem, 2019. "Do factors matter for predicting high-risk stock returns? Comparison of single-, three- and five-factor CAPM," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-16, June.

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