Conditionally parametric fits for CAPM betas

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Conditionally parametric fits for CAPM betas

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Klaus Abberger () (IFO Munich)

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Klaus Abberger

Abstract

The CAPM model assumes stock returns to be a linear function of the market return. However, there is considerable evidence that the beta stability assumption commonly used when estimating the model is invalid. Nonparametric regression methods are used to examine the stability of beta coefcients in German stock returns. Since local polynomial regression is used for estimation, known methods for testing the stability and for bandwidth choice can be used. For some returns the test indicates time-varying betas. For these returns conditionally parametric fits are calculated.

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Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 04-04.

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Length: 14 pages
Date of creation: Feb 2004
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Handle: RePEc:knz:cofedp:0404

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This paper has been announced in the following NEP Reports:

NEP-ALL-2006-08-26 (All new papers)
NEP-ETS-2006-08-26 (Econometric Time Series)
NEP-FMK-2006-08-26 (Financial Markets)

References listed on IDEAS
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Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February. [Downloadable!] (restricted)
Fabozzi, Frank J. & Francis, Jack Clark, 1978. "Beta as a Random Coefficient," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(01), pages 101-116, March. [Downloadable!]

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Mª Victoria Esteban González & Fernando Tusell Palmer, 2009. "Predicting Betas: Two new methods," BILTOKI 200901, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística). [Downloadable!]

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