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Time-varying estimates of CAPM betas

  • Groenewold, Nicolaas
  • Fraser, Patricia
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    It is well known that the CAPM beta is not stable over time. We investigate the nature of the time-variation in betas using monthly Australian data from 1979 to 1994 for 23 sectors. We discuss beta estimates for sub-periods and tests of the statistical adequacy of the market model used to estimate the betas. We estimate time-varying betas using recursive regressions, rolling regressions and using the Kalman Filter. We find considerable time-variation in the estimated betas and find that many are non-stationary. We estimate a simple model which explains the variation in each of the betas in terms of a time trend, allowing for a break both in level and in trend at October 1987. The model explains a large proportion of the variation in the betas over the sample period for most of the sectors.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378475499000336
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    Article provided by Elsevier in its journal Mathematics and Computers in Simulation (MATCOM).

    Volume (Year): 48 (1999)
    Issue (Month): 4 ()
    Pages: 531-539

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    Handle: RePEc:eee:matcom:v:48:y:1999:i:4:p:531-539
    Contact details of provider: Web page: http://www.journals.elsevier.com/mathematics-and-computers-in-simulation/

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