Time varying beta risk: An analysis of alternative modelling techniques

Robert W. Faff, David Hillier, Joseph Hillier*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

75 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)523-554
Number of pages32
JournalJournal of Business Finance and Accounting
Volume27
Issue number5-6
DOIs
Publication statusPublished - Jun 2000
Externally publishedYes

Fingerprint

Dive into the research topics of 'Time varying beta risk: An analysis of alternative modelling techniques'. Together they form a unique fingerprint.

Cite this