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Does beta react to market conditions? Estimates of 'bull' and 'bear' betas using a nonlinear market model with an endogenous threshold parameter

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Author Info

  • George Woodward
  • Heather Anderson

Abstract

The authors use a logistic smooth transition market (LSTM) model to investigate whether 'bull' and 'bear' market betas for Australian industry portfolios returns differ. The LSTM model allows the data to determine a threshold parameter that differentiates between 'bull' and 'bear' states, and it also allows for smooth transition between these two states. Their results indicate that 'bull' and 'bear' betas are significantly different for most industries, and that up-market risk is not always lower than down-market risk. LSTM models indicate that the transition between 'bull' and 'bear' states is abrupt, supporting a dual-beta market modelling framework.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680802595643
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 9 (2009)
Issue (Month): 8 ()
Pages: 913-924

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Handle: RePEc:taf:quantf:v:9:y:2009:i:8:p:913-924

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Related research

Keywords: Bull and bear betas; Dual-beta market (DBM); Models; Linearity tests; Logistic smooth transition market (LSTM) models; Sequential conditional least squares (SCLS);

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References

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  1. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
  2. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
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Cited by:
  1. Dumitriu, Ramona & Stefanescu, Razvan & Nistor, Costel, 2010. "Systematic risks for the financial and for the non-financial Romanian companies," MPRA Paper 41636, University Library of Munich, Germany, revised 28 Feb 2010.
  2. Janusz Brzeszczynski & Graham McIntosh, 2012. "Performance of Portfolios Composed of British SRI Stocks," CFI Discussion Papers 1204, Centre for Finance and Investment, Heriot Watt University.
  3. Saumitra N. Bhaduri & S. Raja Sethu Durai, 2006. "Asymmetric beta in bull and bear market conditions: evidences from India," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(1), pages 55-59, January.
  4. Janusz BrzeszczyƄski & Graham McIntosh, 2014. "Performance of Portfolios Composed of British SRI Stocks," Journal of Business Ethics, Springer, vol. 120(3), pages 335-362, March.

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