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Beta through the prism of wavelets

Author

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  • Aasif Shah

    (Indian Institute of Technology Madras)

  • Arif Tali

    (Pondicherry University)

  • Qaiser Farooq

    (Pondicherry University)

Abstract

In this paper, we empirically show how wavelet decomposition can provide an easy vehicle to study the systematic risk properties of return series to serve as protocol for different traders who view the market with different time resolutions. By using the separate catalogue of Large Cap, Mid Cap and Small Cap stocks comprising S&P BSE-500 index of Indian capital market, we report that the conventional beta coefficients estimated from CAPM are essentially an average of wavelet betas but the later provides a resolution more appropriate and hence need to be considered in a realistic risk assessment of securities. Additionally, the wavelet beta coefficients for Large Cap stocks are found more stable than Mid and Small capitalized stocks. This paper is the first attempt of its kind to link the underlying methodology across different capitalized stocks to identify the precise beta in a complex market behavior.

Suggested Citation

  • Aasif Shah & Arif Tali & Qaiser Farooq, 2018. "Beta through the prism of wavelets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-17, December.
    • Handle: RePEc:spr:fininn:v:4:y:2018:i:1:d:10.1186_s40854-018-0102-4
    DOI: 10.1186/s40854-018-0102-4
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    References listed on IDEAS

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    Cited by:

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    4. Marcela de Marillac Carvalho & Luiz Otávio de Oliveira Pala & Gabriel Rodrigo Gomes Pessanha & Thelma Sáfadi, 2021. "Asymmetric dependence of intraday frequency components in the Brazilian stock market," SN Business & Economics, Springer, vol. 1(6), pages 1-18, June.

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    More about this item

    Keywords

    CAPM; Beta; Wavelet;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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