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Shifts in beta and the TARP announcement

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Listed:
  • Phin, Andrew
  • Prono, Todd
  • Reeves, Jonathan J.
  • Saxena, Konark

Abstract

Using high frequency return data, we propose a method for detecting level shifts in stock betas in the context of an event study. Using this method, we identify significant beta changes around the initial announcement of the Troubled Asset Relief Program (TARP). Our findings have important implications for studies of TARP that assume betas remain unchanged following the program’s announcement. Pre-TARP betas are found to be poor measures of post-TARP systematic risk exposure. Holding these betas fixed at pre-TARP levels in the estimation of cumulative abnormal returns (CARs) risks distorting the magnitudes of these CARs by multiple orders.

Suggested Citation

  • Phin, Andrew & Prono, Todd & Reeves, Jonathan J. & Saxena, Konark, 2022. "Shifts in beta and the TARP announcement," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000320
    DOI: 10.1016/j.frl.2022.102704
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    References listed on IDEAS

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    More about this item

    Keywords

    Event study; Realized beta; Intra-day returns; Systematic risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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