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A Multivariate Test of a Dual-Beta CAPM: Australian Evidence

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  • Faff, Robert

Abstract

I apply a multivariate one-step testing procedure to investigate a dual-beta CAPM. I begin by establishing that there is no statistical relation between beta and returns for the standard CAPM. I then re-cast the one-step test to accommodate a dual-beta CAPM under bull and bear market conditions. When the excess market return is negative (positive), I find strong evidence of a negative (positive) relation between beta and returns. The strength of my results suggests that the success of the model is not crucially dependent on the argument for beta instability. Copyright 2001 by MIT Press.

Suggested Citation

  • Faff, Robert, 2001. "A Multivariate Test of a Dual-Beta CAPM: Australian Evidence," The Financial Review, Eastern Finance Association, vol. 36(4), pages 157-174, November.
  • Handle: RePEc:bla:finrev:v:36:y:2001:i:4:p:157-74
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    Cited by:

    1. Ashraf, Dawood & Mohammad, Nazeeruddin, 2014. "Matching perception with the reality—Performance of Islamic equity investments," Pacific-Basin Finance Journal, Elsevier, vol. 28(C), pages 175-189.
    2. repec:wsi:ijtafx:v:08:y:2005:i:01:n:s0219024905002901 is not listed on IDEAS
    3. Pawel Bilinski & Danielle Lyssimachou, 2014. "Risk Interpretation of the CAPM's Beta: Evidence from a New Research Method," Abacus, Accounting Foundation, University of Sydney, vol. 50(2), pages 203-226, June.
    4. David Morelli, 2012. "Security returns, beta, size, and book-to-market equity: evidence from the Shanghai A-share market," Review of Quantitative Finance and Accounting, Springer, vol. 38(1), pages 47-60, January.
    5. Nath, H. (Mindi) B. & Kim, Jae H. & Brooks, Robert D., 2012. "Realized dual-betas for leading Australian stocks: An evaluation of the estimation methods and the effect of the sampling interval," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 83(C), pages 10-22.
    6. Javid, Attiya Yasmin, 2008. "Time Varying Risk Return Relationship: Evidence from Listed Pakistani Firms," MPRA Paper 37561, University Library of Munich, Germany.
    7. Morelli, David, 2007. "Beta, size, book-to-market equity and returns: A study based on UK data," Journal of Multinational Financial Management, Elsevier, vol. 17(3), pages 257-272, July.
    8. Mohammad, Nazeeruddin & Ashraf, Dawood, 2015. "The market timing ability and return performance of Islamic equities: An empirical study," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 169-183.
    9. Durand, Robert B. & Lan, Yihui & Ng, Andrew, 2011. "Conditional beta: Evidence from Asian emerging markets," Global Finance Journal, Elsevier, vol. 22(2), pages 130-153.
    10. Roland Shami & Don U.A. Galagedera, 2004. "Beta Risk and Regime Shift in Market Volatility," Finance 0406012, EconWPA.
    11. Morelli, David, 2011. "Joint conditionality in testing the beta-return relationship: Evidence based on the UK stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 1-13, February.
    12. Attiya Y. Javid & Eatzaz Ahmad, 2008. "The Conditional Capital Asset Pricing Model: Evidence from Karachi Stock Exchange," PIDE-Working Papers 2008:48, Pakistan Institute of Development Economics.
    13. Don U. A. Galagedera & Robert Faff, 2005. "Modeling The Risk And Return Relation Conditional On Market Volatility And Market Conditions," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 75-95.
    14. Kundu, Srikanta & Sarkar, Nityananda, 2016. "Return and volatility interdependences in up and down markets across developed and emerging countries," Research in International Business and Finance, Elsevier, vol. 36(C), pages 297-311.

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