Systematic Risk Changes, Negative Realized Excess Returns and Time-Varying CAPM Beta
Journal Title: Finance a uver - Year 2015, Vol 65, Issue 2
Abstract
We make two methodological modifications to the method of testing CAPM beta and we show that these significantly affect inferences about the association between CAPM beta and stock returns. While the conventional beta proxy is indeed largely unrelated to realized stock returns (in fact the relationship is slightly negative), using forward-looking beta and eliminating unrealistic assumptions about expected market returns makes it (highly) significant. In addition, we show that complementary empirical factors—size and ratio of the book-to-market value of equity—that are sometimes presented as potential remedies to beta’s deficiencies do not seem to outperform beta. This suggests that weak empirical support for CAPM beta is likely caused by complications with implementing CAPM rather than by the weakness of the underlying concept.
Authors and Affiliations
Jiri Novak
Keywords
Related Articles
- EP ID EP297501
- DOI -
- Views 152
- Downloads 0
The Impact of Monetary Policy on Financing of Czech Firms
This paper uses firm-level financial data for Czech firms in the period from 2003 to 2011 and tests for the role of companies' financial structure in the transmission of monetary policy. Our results indicate that higher...
Monetary and Fiscal Policy Interaction with Various Degrees of Commitment
Well before the global financial crisis, the long-term trend in fiscal policy had raised concerns about risks for the outcomes of monetary policy. Are fears of an unpleasant monetarist arithmetic justified? To provide so...
Inflation Targeting and Variability of Money Market Interest Rates Under a Zero Lower Bound
The paper presents a formal framework of money market interest rates variability under a zero lower bound in a monetary policy strategy of inflation targeting. The potential factors influencing the variability of money m...
Improving Bankruptcy Prediction in Micro-Entities by Using Nonlinear Effects and Non-Financial Variables
The use of non-parametric methodologies, the introduction of non-financial variables, and the development of models geared towards the homogeneous characteristics of corporate sub-populations have recently experienced a...
Estimation and Performance Assessment of Value-at-Risk and Expected Shortfall Based on LM GARCH-Class Models
In this paper, we explore the relevance of asymmetry, long memory and fat tails in modeling and forecasting the conditional volatility and market risk for the Gulf Cooperation Council (GCC) stock markets. Various linear...