No abstract

This study aims to model volatility as an approximation to an optimum measurement of stock market risk because of the importance of this concept for, among other things, the proper management of portfolios. Following the proposal of Lamoureux and Lastrapes (1990), the authors consider that the high degree of persistence detected in GARCH models arises from a poor specification of the equation of the variance due to not considering the possible deterministic changes in the unconditional variance of the financial series. To determine the point in time as well as the duration of these changes, the proposal made by Inclan and Tiao (1994) is used. As an empirical application, whether or not the consideration of the changes obtained influences the diagram of conditional heteroscedasticity presented by the spot and futures series on the IBEX-35 index is tested for the Spanish stock market. The results show that the consideration of these changes considerably decreases the degree of persistence for the IBEX-35 index while, for its futures contract, the GARCH diagram disappears.

The primary objective of the present study is to analyse the extent of the passive timing effect in portfolio management. This effect is produced when a portfolio which is not managed actively shows signs of instability in its level of systematic risk. By contrast, market timing involves active management of the portfolio and therefore changes to the level of systematic risk in order to anticipate market movements in an appropriate manner. This study proposes a dynamic beta model which incorporates the effect of passive timing attributable to the accumulated evolution of weightings for the assets that make up the portfolio. The results demonstrate the importance of this effect when applying performance and market timing measures in order to evaluate portfolio results, such as those of mutual funds.