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Testing the Stationarity of Beta for Automotive and Auto-Ancillary Sector Stocks in Indian Stock Market

Author

Listed:
  • Mihir Dash

    (Alliance University, India)

  • Silky Sonthalia Sundarka

    (Alliance University, India)

Abstract

Beta is the central concept in the CAPM model. If betas vary considerably across time, the CAPM model’s explanatory power would be undermined. The objective of the study is to test the stationarity of beta for automotive and auto-ancillary sector stocks in different market regimes in Indian stock markets. The study was performed using a sample of eleven automotive and auto-ancillary sector stocks listed on the Bombay Stock Exchange, India, over a study period of 10 years. The study period was sub-divided into phases based on overall market trends: Stagnant phase (Apr. 2001 - Mar. 2003), Growth phase (Apr. 2003 - Mar. 2005), Boom phase (Apr. 2005 - Dec. 2007), Depression phase (Jan. 2008 - Mar. 2009), and Steady phase (Apr. 2009 - Mar. 2011). The analysis was performed through the application of univariate ANCOVA. The results indicate that the betas were relatively stationary over the different market regimes for all of the sample stocks. This suggests that beta can be taken to be stationary for automotive and auto-ancillary sector stocks in Indian stock markets.

Suggested Citation

  • Mihir Dash & Silky Sonthalia Sundarka, 2015. "Testing the Stationarity of Beta for Automotive and Auto-Ancillary Sector Stocks in Indian Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(2), pages 76-81.
  • Handle: RePEc:ods:journl:v:4:y:2015:i:2:p:76-81
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    References listed on IDEAS

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    1. Blume, Marshall E, 1975. "Betas and Their Regression Tendencies," Journal of Finance, American Finance Association, vol. 30(3), pages 785-795, June.
    2. Fabozzi, Frank J & Francis, Jack Clark, 1977. "Stability Tests for Alphas and Betas over Bull and Bear Market Conditions," Journal of Finance, American Finance Association, vol. 32(4), pages 1093-1099, September.
    3. Jagan Gaur & Mihir Dash, 2015. "Macroeconomic Factors and Performance of Indian Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(1), pages 11-15.
    4. Altman, Edward I & Jacquillat, Bertrand C & Levasseur, Michel, 1974. "Comparative Analysis of Risk Measures: France and the United States," Journal of Finance, American Finance Association, vol. 29(5), pages 1495-1511, December.
    5. Garbade, Kenneth & Rentzler, Joel, 1981. "Testing the Hypothesis of Beta Stationarity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 577-587, October.
    6. Gooding, Arthur E. & O'Malley, Terence P., 1977. "Market Phase and the Stationarity of Beta," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(05), pages 833-857, December.
    7. Scott, Elton & Brown, Stewart, 1980. " Biased Estimators and Unstable Betas," Journal of Finance, American Finance Association, vol. 35(1), pages 49-55, March.
    8. Blume, Marshall E, 1971. "On the Assessment of Risk," Journal of Finance, American Finance Association, vol. 26(1), pages 1-10, March.
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    Cited by:

    1. Mihir Dash, 2017. "A Study of Granger Causality in Latin American Stock Markets," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 6(2), pages 82-88, May.
    2. Nibu Raj Abraham, 2015. "Underpricing in the Malaysian IPO Market During 2009-2014," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(4), pages 194-200, November.
    3. Yu Zhang & Xiaosong Zheng, 2016. "A Study of Herd Behavior Based on the Chinese Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(2), pages 131-135, May.

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