A Quantitative Investigation of the Time-varying Beta of the International CAPM: The Case of North American and European Equity Portfolios

Abstract

This paper investigates the time-invariant and the time-varying betas of the international capital asset pricing model (CAPM) for North American and European equity portfolio returns over the period from August 1, 1990 to June 30, 2016. Our quantitative examinations using the full vector-half (VECH) model reveal the following interesting evidence. First, we find that (1) the time-invariant international CAPM beta value for North American equity portfolio returns and that for European equity portfolio returns, which are derived from the standard ordinary least squares (OLS) method, are both close to one. In contrast, our examinations find that (2) the time-varying international CAPM betas of North American equity portfolio returns are lower than one before 1996, and slightly higher than one after around 1996. Moreover, our investigations further reveal that (3) the time-varying international CAPM betas of European equity portfolio returns are lower than one before around 2004, and clearly higher than one after around 2004.

How Can We Interpret the Estimates of the Full BEKK Model with Asymmetry? The Case of French and German Stock Returns

“…We emphasize that these illustrations are also very useful to deepen our practical knowledge as to these kinds of econometric models. For instance, as for other models, the applications of vector-half (VECH) model and DCC model were conducted in Tsuji (2017) and Tsuji (2016), respectively.…”