The Impact of News on Measures of Undiversifiable Risk: Evidence from the UK Stock Market
AbstractThe usual measure of the undiversifiable risk of a portfolio is its beta. Recent research has allowed beta estimates to vary over time, often based on symmetric multivariate GARCH models. There is, however, widespread evidence in the literature that the volatilities of asset returns, in particular those from stock markets, show evidence of an asymmetric response to good and bad news. Using UK equity index data, this paper considers the impact of news on time varying measures of beta. The results suggest that beta depends on two sources of news-news about the market and news about the sector. The asymmetric effect in beta is consistent across all sectors considered. Recent research provides conflicting evidence as to whether abnormalities in equity returns are a result of changes in expected returns in an efficient market or an over-reaction to new information. The evidence in this paper suggests that such abnormalities may occur as a result of changes in expected return caused by time-variation and asymmetry in beta.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 733.
Length: 28 pages
Date of creation: 2000
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Other versions of this item:
- Brooks, Chris & Henry, Olan T, 2002. " The Impact of News on Measures of Undiversifiable Risk: Evidence from the UK Stock Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(5), pages 487-507, December.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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