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The beta heuristic from a time/frequency perspective: A wavelet analysis of the market risk of sectors

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  • McNevin, Bruce D.
  • Nix, Joan

Abstract

Wavelet methodology is used to estimate scale betas for eleven industry/sectors for the period 1986-2016. A comparison of scale betas with standard regression estimates of betas finds no significant differences for any of the sectors at high frequency/low scales. However, for most of the sectors there are significant differences at medium and high scales. A rolling 60 month window shows that scale betas may differ from standard betas substantially for several years. Implications for portfolio managers, especially those employing beta rotation strategies, are provided.

Suggested Citation

  • McNevin, Bruce D. & Nix, Joan, 2018. "The beta heuristic from a time/frequency perspective: A wavelet analysis of the market risk of sectors," Economic Modelling, Elsevier, vol. 68(C), pages 570-585.
  • Handle: RePEc:eee:ecmode:v:68:y:2018:i:c:p:570-585
    DOI: 10.1016/j.econmod.2017.03.024
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    References listed on IDEAS

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    More about this item

    Keywords

    Wavelet analysis; CAPM; Equity betas; Sectors;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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