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Dynamic conditional betas and equity returns

Author

Listed:
  • Salvatore Joseph Terregrossa

    (Associate Professor, Department of Business Administration, Istanbul Aydin University, Istanbul 34295, Turkey)

  • Veysel Eraslan

    (#x2020;Equity Market Specialist, Equity Markets Department, Borsa Istanbul, Istanbul 34467, Turkey)

Abstract

Our study makes use of a new approach to estimate time-varyingbetas with an application of the corrected Dynamic Conditional Correlation (cDCC) model. Our empirical methodology encompasses an examination of predictive relations between equity return and different specifications of dynamic conditional beta, using cross-sectional regression analysis at both the portfolio and firm levels. Our main finding is a significant, positive relation between equity excess return and an interactive cross product term of dynamic conditional beta and market excess return (βrm); suggesting that equity return is largely determined by an interaction effect between dynamic beta and market return.

Suggested Citation

  • Salvatore Joseph Terregrossa & Veysel Eraslan, 2020. "Dynamic conditional betas and equity returns," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 1-17, December.
    • Handle: RePEc:wsi:ijfexx:v:07:y:2020:i:04:n:s2424786320500358
    DOI: 10.1142/S2424786320500358
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