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Adjusting the CAPM for Threshold Effects: An Application to Food and Agribusiness Stocks

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Listed:
  • Christine Wilson

    (Department of Agricultural Economics, College of Agriculture, Purdue University)

  • Allen Featherstone

    (Department of Agricultural Economics, Kansas State University)

Abstract

The dynamics in stock returns and the market return for 21 food and agribusiness firms are estimated in a threshold switching-regression framework. Threshold adjustment levels and capital asset pricing model risk parameters are estimated and tested. Results indicate risk parameters differ for alternative regimes and are not constant over time. Accounting for periods of temporary disequilibrium leads to notably more stable risk measurement estimates.

Suggested Citation

  • Christine Wilson & Allen Featherstone, 2006. "Adjusting the CAPM for Threshold Effects: An Application to Food and Agribusiness Stocks," Working Papers 06-08, Purdue University, College of Agriculture, Department of Agricultural Economics.
    • Handle: RePEc:pae:wpaper:06-08
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    File URL: http://ageconsearch.umn.edu/bitstream/28619/1/sp060008.pdf
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    References listed on IDEAS

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    1. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
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    Cited by:

    1. Kemp-Benedict, Eric, 2012. "The national bioenergy investment model: Technical documentation," MPRA Paper 37835, University Library of Munich, Germany.
    2. Turhan Korkmaz & Emrah I. Çevik & Elif Birkan & Nesrin ÖzataÇ, 2010. "Testing Capm using Markov Switching Model: The Case of Coal Firms," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 23(2), pages 44-59, January.

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    More about this item

    Keywords

    CAPM; Cointegration; Risk; Threshold;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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    This paper has been announced in the following NEP Reports:

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