TY - JOUR
T1 - Time varying beta risk: An analysis of alternative modelling techniques
AU - Faff, Robert W.
AU - Hillier, David
AU - Hillier, Joseph
PY - 2000/6
Y1 - 2000/6
N2 - This paper investigates the performance of three different approaches to modelling time-variation in conditional asset betas: GARCH models, the extended market model of Schwert and Seguin (1990) and the Kalman Filter algorithm. Using daily UK industry returns, we find the simple market model beta to be as efficient as the more complicated GARCH type models. However, the Kalman Filter algorithm incorporating a random walk parameterisation dominates all other models under the mean-square error criterion. Finally, we provide strong evidence that a combination of the methods under investigation may lead to considerably more powerful estimators of the time-variation in conditional beta.
AB - This paper investigates the performance of three different approaches to modelling time-variation in conditional asset betas: GARCH models, the extended market model of Schwert and Seguin (1990) and the Kalman Filter algorithm. Using daily UK industry returns, we find the simple market model beta to be as efficient as the more complicated GARCH type models. However, the Kalman Filter algorithm incorporating a random walk parameterisation dominates all other models under the mean-square error criterion. Finally, we provide strong evidence that a combination of the methods under investigation may lead to considerably more powerful estimators of the time-variation in conditional beta.
UR - http://www.scopus.com/inward/record.url?scp=0043074175&partnerID=8YFLogxK
U2 - 10.1111/1468-5957.00324
DO - 10.1111/1468-5957.00324
M3 - Article
AN - SCOPUS:0043074175
SN - 0306-686X
VL - 27
SP - 523
EP - 554
JO - Journal of Business Finance and Accounting
JF - Journal of Business Finance and Accounting
IS - 5-6
ER -