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Financial turbulence and beta estimation

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  • Dave Berger

Abstract

This study identifies periods of turbulence within financial markets. Capital Asset Pricing Model (CAPM) betas estimated during tranquil periods exhibit little relation between estimated risk and average returns, and further, a majority of considered portfolios exhibit significant abnormal performance, given the tranquil or full-sample beta estimate. However, betas estimated from turbulent subperiods exhibit a strong relation between risk and return. Further, given turbulent betas, the observed performance is frequently consistent with the CAPM. Market betas for small and value portfolios increase during turbulent periods, indicating that the risk of these portfolios is greater than those indicated by standard betas.

Suggested Citation

  • Dave Berger, 2013. "Financial turbulence and beta estimation," Applied Financial Economics, Taylor & Francis Journals, vol. 23(3), pages 251-263, February.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:3:p:251-263
    DOI: 10.1080/09603107.2012.718065
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    Cited by:

    1. Dębski Wiesław & Feder-Sempach Ewa & Świderski Bartosz, 2016. "Beta Stability Over Bull and Bear Market on the Warsaw Stock Exchange," Folia Oeconomica Stetinensia, Sciendo, vol. 16(1), pages 75-92, December.

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