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Nonparametric estimation betas in the Market Model

  • Esteban González, María Victoria
  • Orbe Mandaluniz, Susan

In this study an alternative nonparametric estimator to the Fama and MacBeth approach for the CAPM estimation is proposed. Betas and risk premiums are estimated simultaneously in order to increase the explanatory power of the proxy for betas. A data driven method is proposed for selecting the smoothness degrees, which are directly related to the subsample sizes. Based on this relation, the traditional estimator is obtained as a particular case. Contrary to the results obtained in other studies our empirical evidence for Spanish market data is favorable to the CAPM.

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File URL: http://hdl.handle.net/10810/5644
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Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 2006-03.

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Date of creation: 2006
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Handle: RePEc:ehu:biltok:200603
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Order Information: Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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  1. repec:cup:cbooks:9780521405737 is not listed on IDEAS
  2. Ferson, Wayne E & Harvey, Campbell R, 1991. "The Variation of Economic Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 385-415, April.
  3. Robert Brooks & Robert Faff & Thomas Josev, 1997. "Beta stability and monthly seasonal effects: evidence from the Australian capital market," Applied Economics Letters, Taylor & Francis Journals, vol. 4(9), pages 563-566.
  4. Baesel, Jerome B, 1974. "On the Assessment of Risk: Some Further Considerations," Journal of Finance, American Finance Association, vol. 29(5), pages 1491-94, December.
  5. Gonzalez-Rivera, G., 1996. "The Pricing of Time-Varing Beta," The A. Gary Anderson Graduate School of Management 96-1, The A. Gary Anderson Graduate School of Management. University of California Riverside.
  6. Bos, T & Newbold, P, 1984. "An Empirical Investigation of the Possibility of Stochastic Systematic Risk in the Market Model," The Journal of Business, University of Chicago Press, vol. 57(1), pages 35-41, January.
  7. Belén Nieto & Rosa Rodriguez, 2005. "Modelos de valoración de activos condicionales: Un panorama comparativo," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 33-71, January.
  8. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
  9. Lutkepohl, Helmut & Herwartz, Helmut, 1996. "Specification of varying coefficient time series models via generalized flexible least squares," Journal of Econometrics, Elsevier, vol. 70(1), pages 261-290, January.
  10. Gonedes, Nicholas J., 1973. "Evidence on the Information Content of Accounting Numbers: Accounting-based and Market-based Estimates of Systematic Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(03), pages 407-443, June.
  11. Cooley, Thomas F & Prescott, Edward C, 1976. "Estimation in the Presence of Stochastic Parameter Variation," Econometrica, Econometric Society, vol. 44(1), pages 167-84, January.
  12. M. Victoria Esteban, 1997. "Variabilidad predecible en los rendimientos de los activos: Evidencia e implicaciones," Investigaciones Economicas, Fundación SEPI, vol. 21(3), pages 523-542, September.
  13. Fabozzi, Frank J. & Francis, Jack Clark, 1978. "Beta as a Random Coefficient," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(01), pages 101-116, March.
  14. Shanken, Jay, 1992. "On the Estimation of Beta-Pricing Models," Review of Financial Studies, Society for Financial Studies, vol. 5(1), pages 1-33.
  15. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
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