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Some Further Evidence on the Stochastic Properties of Systematic Risk

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  • Collins, Daniel W
  • Ledolter, Johannes
  • Rayburn, Judy Dawson
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    Abstract

    Although there is consensus in the finance literature that the beta risk of equity securities is stochastic, there is considerable disagreement as to whether the var iation is purely random or exhibits autocorrelation through time. To investigate this issue, the authors employ a model that allows beta t o exhibit both random and autoregressive behavior simultaneously. The y test this model against alternative specifications on a large sampl e of individual securities and randomly formed portfolios comprising 10, 50, and 100 securities. Results are also presented for portfolios formed according to firm size. Copyright 1987 by the University of Chicago.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 60 (1987)
    Issue (Month): 3 (July)
    Pages: 425-48

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    Handle: RePEc:ucp:jnlbus:v:60:y:1987:i:3:p:425-48

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Y. Malevergne & D. Sornette, 2006. "Self-Consistent Asset Pricing Models," Papers physics/0608284, arXiv.org.
    2. Carl Chiarella & Roberto Dieci & Xue-Zhong He, 2010. "Time-Varying Beta: A Boundedly Rational Equilibrium Approach," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 275, Quantitative Finance Research Centre, University of Technology, Sydney.
    3. Rua, António & Nunes, Luis C., 2012. "A wavelet-based assessment of market risk: The emerging markets case," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 52(1), pages 84-92.
    4. Sascha Mergner & Jan Bulla, 2005. "Time-varying Beta Risk of Pan-European Industry Portfolios: A Comparison of Alternative Modeling Techniques," Finance, EconWPA 0510029, EconWPA.
    5. Tusell Palmer, Fernando Jorge & Esteban González, María Victoria, 2009. "Predicting Betas: Two new methods," BILTOKI, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) 2009-01, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
    6. Abu Taher Mollik & M. Khokan Bepari, 2010. "Instability of stock beta in Dhaka Stock Exchange, Bangladesh," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 36(10), pages 886-902, October.
    7. Markus Ebner & Thorsten Neumann, 2005. "Time-Varying Betas of German Stock Returns," Financial Markets and Portfolio Management, Springer, Springer, vol. 19(1), pages 29-46, June.
    8. 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, Elsevier, vol. 13(4), pages 581-597.
    9. Li, Hong, 2013. "Integration versus segmentation in China's stock market: An analysis of time-varying beta risks," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 25(C), pages 88-105.
    10. Keith Lam, 1999. "Some evidence on the distribution of beta in Hong Kong," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(3), pages 251-262.
    11. Sascha Mergner, 2005. "Time-varying Beta Risk of Pan-European Sectors: A Comparison of Alternative Modeling Techniques," Finance, EconWPA 0509024, EconWPA.
    12. Mattia Ciprian & Stefano d'Addona, 2005. "Time Varying Sensitivities on a GRID architecture," Finance, EconWPA 0511007, EconWPA.
    13. Panagiotis Samartzis & Nikitas Pittis & Nikolaos Kourogenis & Phoebe Koundouri, . "Factor Models of Stock Returns: GARCH Errors versus Autoregressive Betas," DEOS Working Papers 1318, Athens University of Economics and Business.
    14. R. D. Brooks & R. W. Faff & M. McKenzie, 2002. "Time varying country risk: an assessment of alternative modelling techniques," The European Journal of Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(3), pages 249-274.
    15. McKenzie, Michael D. & Brooks, Robert D. & Faff, Robert W. & Ho, Yew Kee, 2000. "Exploring the economic rationale of extremes in GARCH generated betas The case of U.S. banks," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 40(1), pages 85-106.
    16. Brooks, Robert D. & Faff, Robert W. & Ariff, Mohamed, 1998. "An investigation into the extent of beta instability in the Singapore stock market," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 6(1-2), pages 87-101, May.
    17. Brailsford, Timothy J. & Josev, Thomas, 1997. "The impact of the return interval on the estimation of systematic risk," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 5(3), pages 357-376, July.
    18. Brooks, Robert D. & Faff, Robert W. & Yew, Kee Ho, 1997. "A new test of the relationship between regulatory change in financial markets and the stability of beta risk of depository institutions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 21(2), pages 197-219, February.

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