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Tests of regimes - switching CAPM

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Author Info

  • Ho-Chuan Huang

Abstract

A novel test for CAPM is presented. In contrast to the traditional models, allowance is made for the possibility that the risk measure, β, to be drawn from two different regimes, e.g. high-risk state and low-risk state. Estimation method is given, empirical results are investigated and specification tests are performed. The hypotheses of two states cannot be rejected. In addition, evidence shows that the data from low-risk state are consistent with CAPM whereas the data from high-risk state violate CAPM.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/096031000416451
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 10 (2000)
Issue (Month): 5 ()
Pages: 573-578

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Handle: RePEc:taf:apfiec:v:10:y:2000:i:5:p:573-578

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Cited by:
  1. Huang, Ho-Chuan (River), 2003. "Tests of regime-switching CAPM under price limits," International Review of Economics & Finance, Elsevier, vol. 12(3), pages 305-326.
  2. Don U.A. Galagedera & Roland Shami, 2004. "Association between Markov regime-switching market volatility and beta risk: Evidence from Dow Jones industrial securities," Finance 0406011, EconWPA.
  3. Sascha Mergner & Jan Bulla, 2008. "Time-varying beta risk of Pan-European industry portfolios: A comparison of alternative modeling techniques," The European Journal of Finance, Taylor & Francis Journals, vol. 14(8), pages 771-802.
  4. Ho-Chuan Huang & Wan-hsiu Cheng, 2005. "Tests of the CAPM under structural changes," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 523-541.
  5. Don U.A. Galagedera, 2004. "A survey on risk-return analysis," Finance 0406010, EconWPA.
  6. Syed ali, Raza & Syed tehseen, jawaid & Imtiaz, arif & Fahim, qazi, 2011. "Validity of capital asset pricing model: evidence from Karachi stock exchange," MPRA Paper 32737, University Library of Munich, Germany.
  7. Ortas, Eduardo & Moneva, José M. & Salvador, Manuel, 2012. "Does socially responsible investment equity indexes in emerging markets pay off? Evidence from Brazil," Emerging Markets Review, Elsevier, vol. 13(4), pages 581-597.

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