Multiscale Systematic Risk: An Application on ISE-30
In this study, variance changing to the scale and multi-scale Capital Asset Pricing Model (CAPM) is tested by Wavelets as a new analysis method in finance and economics. It introduces a new approach to the variance changing to the scale as a general risk indicator, and to multi-scale CAPM portfolio theory as a systematic risk indicator. In the study, variance changes to scale and systematic risk changes to scale of 10 stocks in ISE-30 have been determined. The ability of the investors to conduct risk based analysis up to 128 days allows them to determine the risk level to the scale (stock holding period). According to the study results; it is determined that the variances of 10 stocks from ISE 30 change according to the scale and variance differentiation as an expression of general risk level increase starting from the 1st scale (1 to 4 days). In multi-scale CAPM, it is determined that systematic risk of all stocks is changed to frequency (scale) and increased at higher scales. The finding as to beta and return at the high levels shall be in stronger form evidenced by Gencay et al (2005) is determined as not applicable to ISE 30. The risk and return for ISE 30 are close to the positive in the 3rd scale (32 days), but they are in the same direction for the other scales. This finding shows that the risk-return maximization of a portfolio of 10 stocks from ISE may be achieved at a level of 32 days and the risk will be higher than the return in the portfolios established at those levels different than 32 days.
|Date of creation:||01 Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frankfurter, George M. & Leung, Wai K. & Brockman, Paul D., 1994. "Compounding period length and the market model," Journal of Economics and Business, Elsevier, vol. 46(3), pages 179-193, August.
- Kim, Sangbae & In, Francis, 2007. "On the relationship between changes in stock prices and bond yields in the G7 countries: Wavelet analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(2), pages 167-179, April.
- Brailsford, Timothy J. & Josev, Thomas, 1997. "The impact of the return interval on the estimation of systematic risk," Pacific-Basin Finance Journal, Elsevier, vol. 5(3), pages 357-376, July.
- Brailsford, Timothy J. & Faff, Robert W., 1997. "Testing the conditional CAPM and the effect of intervaling: A note," Pacific-Basin Finance Journal, Elsevier, vol. 5(5), pages 527-537, December.
- Abdullah Almasri & Ghazi Shukur, 2003. "An illustration of the causality relation between government spending and revenue using wavelet analysis on Finnish data," Journal of Applied Statistics, Taylor & Francis Journals, vol. 30(5), pages 571-584.
- Hahn Shik Lee, 2004. "International transmission of stock market movements: a wavelet analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 197-201.
- Hawawini, Gabriel, 1983. "Why beta shifts as the return interval changes," MPRA Paper 44893, University Library of Munich, Germany.
- Viviana Fernandez, 2006.
"The International CAPM and a Wavelet-Based Decomposition of Value at Risk,"
NBER Working Papers
12233, National Bureau of Economic Research, Inc.
- Fernandez Viviana P, 2005. "The International CAPM and a Wavelet-Based Decomposition of Value at Risk," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(4), pages 1-37, December.
- Viviana Fernandez, 2005. "The International CAPM and a wavelet-based decomposition of Value at Risk," The Institute for International Integration Studies Discussion Paper Series iiisdp075, IIIS.
- Viviana Fern�ndez, 2005. "The International CAPM and a wavelet-based decomposition of Value at Risk," Documentos de Trabajo 203, Centro de Economía Aplicada, Universidad de Chile.
- Ramsey, James B. & Lampart, Camille, 1998. "Decomposition Of Economic Relationships By Timescale Using Wavelets," Macroeconomic Dynamics, Cambridge University Press, vol. 2(01), pages 49-71, March.
- Handa, Puneet & Kothari, S P & Wasley, Charles, 1993. " Sensitivity of Multivariate Tests of the Capital Asset-Pricing Model to the Return Measurement Interval," Journal of Finance, American Finance Association, vol. 48(4), pages 1543-51, September.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
- Fernandez, Viviana, 2006. "The CAPM and value at risk at different time-scales," International Review of Financial Analysis, Elsevier, vol. 15(3), pages 203-219.
- Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
- Mehmet Dalkir, 2004. "A new approach to causality in the frequency domain," Economics Bulletin, AccessEcon, vol. 3(44), pages 1-14.
- Kim Sangbae & In Francis Haeuck, 2003. "The Relationship Between Financial Variables and Real Economic Activity: Evidence From Spectral and Wavelet Analyses," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 7(4), pages 1-18, December.
- Gencay, Ramazan & Selcuk, Faruk & Whitcher, Brandon, 2005. "Multiscale systematic risk," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 55-70, February.
- Ramazan Genay & Faruk Seļuk & Brandon Whitcher, 2003. "Systematic risk and timescales," Quantitative Finance, Taylor & Francis Journals, vol. 3(2), pages 108-116.
- Handa, Puneet & Kothari, S. P. & Wasley, Charles, 1989. "The relation between the return interval and betas : Implications for the size effect," Journal of Financial Economics, Elsevier, vol. 23(1), pages 79-100, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2484. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.