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Estimation, Instability, and Non-Stationarity of Beta Coefficients for Twenty-four Emerging Markets in 2005-2021

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  • Magdalena Mikolajek-Gocejna

Abstract

Purpose: The aim of the article is analyse the stability of country beta coefficient for 24 emerging markets between March 2005 and June 2021. The numerous markets studied allow examining the effects on the stability of beta coefficient of various local political, economic and institutional developments (e.g., democratization or intensification of authoritarian rule). The period of several years enables the examination of the effects of global shocks (e.g., financial crisis 2008/2009, pandemic crisis 2020). Design/Methodology/Approach: Estimation covers the beta coefficient defined as the ratio of the covariance of the rate of return of the examined financial instrument and the rate of return of the market portfolio to the variance of the rate of return of the market portfolio. The ratio defined in this way is equal to the coefficient in Sharp linear regression of rate of return of the examined financial instrument (explained variable)and the rate of return of the market portfolio (explanatory variable). The author of the article tested the stability of emerging markets beta using, Chow test, which uses the F statistic, Cusum test based on generalized fluctuations test framework, trend-stationarity analysis (TS) of the time series of beta coefficients obtained in rolling windows, difference stationarity (DS) analysis of the time series beta coefficients obtained in rolling windows too. Findings: The conclusion about the instability of the beta coefficient for 24 emerging markets is based on the results of the Chow, Cusum, trend-stationarity and unit root tests. The results of single tests are not unequivocal due to the random nature of the phenomenon. The study's preliminary hypothesis about the instability of the beta coefficient was not falsified. Practical Implications: Identification of a scientific gap and the need to research a theory that better explains reality and better forecasts for the future, not only in calm times, but also in times of more rapid changes on the markets. Originality/Value: Author’s research of instability of beta coefficient for twenty-four emerging market portfolios, Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Turkey and UAE with four tests (96 tests in total) over the course of 16 years.

Suggested Citation

  • Magdalena Mikolajek-Gocejna, 2021. "Estimation, Instability, and Non-Stationarity of Beta Coefficients for Twenty-four Emerging Markets in 2005-2021," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 370-395.
    • Handle: RePEc:ers:journl:v:xxiv:y:2021:i:4:p:370-395
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    More about this item

    Keywords

    CAPM; country beta coefficient; systematic risk; stability of beta.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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