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Time-varying beta during the 2008 financial crisis – evidence from North America and Western Europe

Author

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  • Ikrame Ben Slimane
  • Makram Bellalah
  • Hatem Rjiba

Abstract

Purpose - This paper aims to analyze the impact of the global financial crisis on the conditional beta in the region of North America and Western Europe and the effect on the behavior and decisions of the investor. Design/methodology/approach - The authors model the variations of volatility in financial markets during crisis using the bivariate GARCH model of Engle and Kroner (1995). Findings - The empirical investigation identifies an additional effect of the crisis over the period of the test. Results indicate a rise in the beta in some cases and a fall in others. This rise had a direct impact on the systematic beta risk, which increased for the majority of the companies during the crisis period. The increase in beta during the crisis period has an effect on the behavior of the investor and his decisions. Research limitations/implications - The increase in the beta during the period of crisis due to a high volatility returns has an effect on the behavior and decisions of the investor. Originality/value - This paper examines the effects of the “subprime crisis” on the risk premium of companies in several sectors of activity.

Suggested Citation

  • Ikrame Ben Slimane & Makram Bellalah & Hatem Rjiba, 2017. "Time-varying beta during the 2008 financial crisis – evidence from North America and Western Europe," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 18(4), pages 398-431, August.
    • Handle: RePEc:eme:jrfpps:jrf-02-2017-0020
    DOI: 10.1108/JRF-02-2017-0020
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    Cited by:

    1. Pedro Antonio Martín-Cervantes & María del Carmen Valls Martínez, 2023. "Unraveling the relationship between betas and ESG scores through the Random Forests methodology," Risk Management, Palgrave Macmillan, vol. 25(3), pages 1-29, September.

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