Time-varying estimates of CAPM betas

It is well known that the CAPM beta is not stable over time. We investigate the nature of the time-variation in betas using monthly Australian data from 1979 to 1994 for 23 sectors. We discuss beta estimates for sub-periods and tests of the statistical adequacy of the market model used to estimate t...

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Bibliographic Details
Published inMathematics and computers in simulation Vol. 48; no. 4; pp. 531 - 539
Main Authors Groenewold, Nicolaas, Fraser, Patricia
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.06.1999
Subjects
CAPM beta
Recursive beta
Time-varying estimate
Time-varying estimate
Recursive beta
CAPM beta
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ISSN0378-4754
1872-7166
DOI10.1016/S0378-4754(99)00033-6

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Summary:It is well known that the CAPM beta is not stable over time. We investigate the nature of the time-variation in betas using monthly Australian data from 1979 to 1994 for 23 sectors. We discuss beta estimates for sub-periods and tests of the statistical adequacy of the market model used to estimate the betas. We estimate time-varying betas using recursive regressions, rolling regressions and using the Kalman Filter. We find considerable time-variation in the estimated betas and find that many are non-stationary. We estimate a simple model which explains the variation in each of the betas in terms of a time trend, allowing for a break both in level and in trend at October 1987. The model explains a large proportion of the variation in the betas over the sample period for most of the sectors.
ISSN:0378-4754
1872-7166
DOI:10.1016/S0378-4754(99)00033-6