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Estimation du Beta Tempo-fréquentiel de la Droite de Marché-Une approche par les ondelettes continues-
[Time-Frequency varying Beta Estimation -A continuous wavelets approach-]

Author

Listed:
  • MESTRE, Roman
  • TERRAZA, Michel

Abstract

The Beta coefficient theorized by the CAPM is estimated by the Market Line. By hypothesis, the Beta is stable over time but empirical studies on it volatility don't confirm this fact. One of them is related to with agent heterogeneity hypothesis. In this paper; we study this hypothesis by continuous wavelets decomposition of the market line components. We use the wavelet Coherence to calculate a time-frequency Beta. We apply this methodology on three French listed stocks (AXA-LVMH-ORANGE) with different OLS beta for the daily period 2005-2015. We show that the coherence and the time-frequency Betas improve our understanding of the equity characteristics and nature according to their time and frequency dynamics. AXA and LVMH have globally an high coherence with the market whereas ORANGE coherence is low (whatever frequencies). These results can affect the time-frequency betas values. By analysing the betas we see different evolutions and dynamics which can be considered by portfolio managers to optimize their investment horizon. The continuous wavelets is a powerful tool for emphasize the time-frequency instabilities of betas. The hypothesis of heterogeneity of agents has an impact on systematic risk estimations and need to be considered in financial calculations.

Suggested Citation

  • MESTRE, Roman & TERRAZA, Michel, 2017. "Estimation du Beta Tempo-fréquentiel de la Droite de Marché-Une approche par les ondelettes continues- [Time-Frequency varying Beta Estimation -A continuous wavelets approach-]," MPRA Paper 86335, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86335
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    CAPM; Continuous Wavelets ; Wavelets Coherence ; Time-Frequency varying Betas;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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