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Does the equity premium puzzle persist during financial crisis? The case of the French equity market

Author

Listed:
  • Makram Bellalah

    (CRIISEA - Centre de Recherche sur les Institutions, l'Industrie et les Systèmes Économiques d'Amiens - UR UPJV 3908 - UPJV - Université de Picardie Jules Verne)

  • Mondher Bellalah
  • H. Ben Ameur
  • R. Ben Hafsia

Abstract

This paper examines the effects of the financial crisis that began in 2008 on the equity premium of 6 French sector indices. Since the systematic risk coefficient beta remains the most common explanatory element of risk premium in most asset pricing models, we investigate the impact of the crisis on the time-varying beta of the six sector indices cited. We selected daily data from January 2003 to December 2012 and we applied the bivariate MA-GARCH model (BEKK) to estimate time-varying betas for the sector indices. The crisis was marked by increased volatility of the sector indices and the market. This rise in volatility led to an increase in the systematic risk coefficient during the crisis and first post-crisis period for all the major indices. The results are intuitive and corroborate findings in the empirical literature. The increase of the time-varying beta is considered by investors as an additional risk. Therefore, as expected, investors tend to increase their equity premiums to b ear the impact of financial crisis.

Suggested Citation

  • Makram Bellalah & Mondher Bellalah & H. Ben Ameur & R. Ben Hafsia, 2017. "Does the equity premium puzzle persist during financial crisis? The case of the French equity market," Post-Print hal-03819794, HAL.
    • Handle: RePEc:hal:journl:hal-03819794
    DOI: 10.1016/j.ribaf.2015.02.018
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    Cited by:

    1. Dmitry Bazhutov & André Betzer & Richard Stehle, 2023. "Beta estimation in the European network regulation context: what matters, what doesn’t, and what is indispensable," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 37(3), pages 239-275, September.

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