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Time-varying risk in the German stock market

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  • Martin Scheicher

Abstract

This paper compares two specifications of the Capital Asset Pricing Model for a sample of German stocks. The specifications generate time-varying first and second moments by conditioning on past information. This explicit modelling of the time series behaviour of risk allows us to characterize the driving factors of variances and covariances of returns. In addition to a variety of diagnostic tests we evaluate the validity of the one-factor restriction in the CAPM. The main findings are that risk is time dependent and very variable and also that more than one factor is needed to fit the data set.

Suggested Citation

  • Martin Scheicher, 2000. "Time-varying risk in the German stock market," The European Journal of Finance, Taylor & Francis Journals, vol. 6(1), pages 70-91.
    • Handle: RePEc:taf:eurjfi:v:6:y:2000:i:1:p:70-91
    DOI: 10.1080/135184700336964
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    References listed on IDEAS

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    Cited by:

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    2. Schrimpf, Andreas & Schröder, Michael & Stehle, Richard, 2006. "Evaluating conditional asset pricing models for the German stock market," ZEW Discussion Papers 06-043, ZEW - Leibniz Centre for European Economic Research.

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