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Time-varying beta risk of Pan-European industry portfolios: A comparison of alternative modeling techniques

  • Sascha Mergner
  • Jan Bulla

This paper investigates the time-varying behavior of systematic risk for 18 pan-European sectors. Using weekly data over the period 1987-2005, six different modeling techniques in addition to the standard constant coefficient model are employed: a bivariate t-GARCH(1,1) model, two Kalman filter (KF)-based approaches, a bivariate stochastic volatility model estimated via the efficient Monte Carlo likelihood technique as well as two Markov switching models. A comparison of ex-ante forecast performances of the different models indicate that the random walk process in connection with the KF is the preferred model to describe and forecast the time-varying behavior of sector betas in a European context.

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Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

Volume (Year): 14 (2008)
Issue (Month): 8 ()
Pages: 771-802

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Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:771-802
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