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Time-varying risk in the German stock market

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Author Info
Martin Scheicher
Abstract

This paper compares two specifications of the Capital Asset Pricing Model for a sample of German stocks. The specifications generate time-varying first and second moments by conditioning on past information. This explicit modelling of the time series behaviour of risk allows us to characterize the driving factors of variances and covariances of returns. In addition to a variety of diagnostic tests we evaluate the validity of the one-factor restriction in the CAPM. The main findings are that risk is time dependent and very variable and also that more than one factor is needed to fit the data set.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal The European Journal of Finance.

Volume (Year): 6 (2000)
Issue (Month): 1 (March)
Pages: 70-91
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Handle: RePEc:taf:eurjfi:v:6:y:2000:i:1:p:70-91

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Related research
Keywords: Capital Asset Pricing Model Capm; Volatility Clustering; Garch;

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  3. Campbell, John Y., 1987. "Stock returns and the term structure," Journal of Financial Economics, Elsevier, vol. 18(2), pages 373-399, June. [Downloadable!] (restricted)
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  4. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June. [Downloadable!] (restricted)
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  5. McCurdy, Thomas H. & Stengos, Thanasis, 1992. "A comparison of risk-premium forecasts implied by parametric versus nonparametric conditional mean estimators," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 225-244. [Downloadable!] (restricted)
    Other versions:
  6. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc. [Downloadable!]
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  11. Sauer, Andreas & Murphy, Austin, 1992. "An empirical comparison of alternative models of capital asset pricing in Germany," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 183-196, February. [Downloadable!] (restricted)
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  13. Eric Ghysels, 1998. "On Stable Factor Structures in the Pricing of Risk: Do Time-Varying Betas Help or Hurt?," Journal of Finance, American Finance Association, vol. 53(2), pages 549-573, 04. [Downloadable!] (restricted)
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  15. Ng, Victor & Engle, Robert F. & Rothschild, Michael, 1992. "A multi-dynamic-factor model for stock returns," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 245-266. [Downloadable!] (restricted)
  16. Gonzalez-Rivera, Gloria, 1997. "The Pricing of Time-Varying Beta," Empirical Economics, Springer, vol. 22(3), pages 345-63.
  17. Eric Ghysels, 1995. "On Stable Factor Structures in the Pricing of Risk," CIRANO Working Papers 95s-16, CIRANO. [Downloadable!]
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  18. Harvey, Campbell R., 1989. "Time-varying conditional covariances in tests of asset pricing models," Journal of Financial Economics, Elsevier, vol. 24(2), pages 289-317. [Downloadable!] (restricted)
  19. Gonzalez-Rivera, Gloria, 1996. "Time-varying risk The case of the American computer industry," Journal of Empirical Finance, Elsevier, vol. 2(4), pages 333-342, February. [Downloadable!] (restricted)
  20. Lund, Jesper & Engsted, Tom, 1996. "GMM and present value tests of the C-CAPM: evidence from the Danish, German, Swedish and UK stock markets," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 497-521, August. [Downloadable!] (restricted)
  21. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," Journal of Business, University of Chicago Press, vol. 45(3), pages 444-55, July. [Downloadable!] (restricted)
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