Time-varying market beta: does the estimation methodology matter?
Copyright policy )Time-varying market beta: does the estimation methodology matter?
This paper compares the performance of nine time-varying beta estimates taken from three different methodologies never previously compared: least-square estimators including nonparametric weights, GARCH-based estimators and Kalman filter estimators. The analysis is applied to the Mexican stock market (2003-2009) because of the high dispersion in betas. The comparison between estimators relies on their financial applications: asset pricing and portfolio management. Results show that Kalman filter estimators with random coefficients outperform the others in capturing both the time series of market risk and their cross-sectional relation with mean returns, while more volatile estimators are better for diversification purposes.
Financial support is acknowledged from Ministerio de Ciencia e Innovación under research grants ECO2012-35820, ECO2011-29268 and ECO2011-29751, from Generalitat Valenciana under the grant PROMETEO II/2013/015, and from Departamento de Educación, Universidades e Investigación del Gobierno Vasco under research grants IT-783-13 and IT-793-13.
Classificació AMS::62 Statistics::62J Linear inference, :62 Statistics::62M Inference from stochastic processes [Classificació AMS], nonparametric estimator, Classificació AMS::62 Statistics::62J Linear inference, regression, Nonparametric estimator, Time-varying beta, nonparametric estimator, GARCH-based beta estimator, Kalman filter, :62 Statistics::62G Nonparametric inference [Classificació AMS], :Matemàtiques i estadística::Estadística matemàtica [Àrees temàtiques de la UPC], Àrees temàtiques de la UPC::Matemàtiques i estadística::Estadística matemàtica, Economía Financiera y Contabilidad, :62 Statistics::62J Linear inference, regression [Classificació AMS], Classificació AMS::62 Statistics::62M Inference from stochastic processes, GARCH-based beta estimator, regression, Classificació AMS::62 Statistics::62G Nonparametric inference, Kalman filter, Time-varying beta
Classificació AMS::62 Statistics::62J Linear inference, :62 Statistics::62M Inference from stochastic processes [Classificació AMS], nonparametric estimator, Classificació AMS::62 Statistics::62J Linear inference, regression, Nonparametric estimator, Time-varying beta, nonparametric estimator, GARCH-based beta estimator, Kalman filter, :62 Statistics::62G Nonparametric inference [Classificació AMS], :Matemàtiques i estadística::Estadística matemàtica [Àrees temàtiques de la UPC], Àrees temàtiques de la UPC::Matemàtiques i estadística::Estadística matemàtica, Economía Financiera y Contabilidad, :62 Statistics::62J Linear inference, regression [Classificació AMS], Classificació AMS::62 Statistics::62M Inference from stochastic processes, GARCH-based beta estimator, regression, Classificació AMS::62 Statistics::62G Nonparametric inference, Kalman filter, Time-varying beta
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