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The Conditional Relationship Between Portfolio Beta and Return: Evidence from Latin America

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Author Info
Eduardo Sandoval
Rodrigo Saens

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Abstract

Using the approach of Pettengill et al. (1995), we analyze the un-conditional versus conditional cross-sectional CAPM relationship between portfolio beta-risk and return in the Argentinean, Brazilian, Chilean, and Mexican stock markets. We develop extensions to the original model to control for extra risk factors documented in the empirical literature: size, book-to-market ratio and momentum. The paper also presents the first testing of the market integration hypothesis among the Latin American stock markets. The results show that the conditional CAPM is a dominant approach even after controlling for risk factors different from beta. Statistically significant asymmetries are found, however, in the beta-risk premium between up and down markets. Additional findings suggest that the degree of stock market integration among Latin American markets falls during downturns.

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Publisher Info
Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.

Volume (Year): 41 (2004)
Issue (Month): 122 ()
Pages: 65-89
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Handle: RePEc:ioe:cuadec:v:41:y:2004:i:122:p:65-89

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Related research
Keywords: Risk; Return; Stock Market Integration;

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

References listed on IDEAS
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    Other versions:
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