Beta as a Random Coefficient

Fabozzi, Frank J.; Francis, Jack Clark

doi:10.2307/2330525

Cited by 331 publications

(206 citation statements)

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“…They formally propose a model to capture the variations in beta overtime and conduct a test to confirm the model. For instance, Fabozzi and Francis (1978) found strong evidence of beta following the Hildreth-Houck random coefficient model. Collin et al (1987) utilized Ohlsen and Rosenberg's model to analyze the variations in beta for both individual and randomly formed portfolios.…”

Section: Related Papersmentioning

confidence: 99%

The Behavior of Beta in the 19th Century

Mensah¹

2013

AFR

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This paper uses completely new data to study the variations in beta when it deviates from the constancy assumption presumed by the market model. The concentration of the literature on beta is based on post 1926 data. This makes the 19 th century Brussels Stock Exchange (BSE) data a very good out-sample dataset to test beta variations. Various models proposed in the literature to capture the variations in beta were studied. Blume's correlation techniques reveal that beta is not stable at the individual stocks level and that the stability can be fairly improved by portfolio formations. Using root mean square error (RMSE) criterion, it was shown that the market model betas are weak in predicting future betas. The predictability can be improved by adjusting betas with the Blume and Vasicek mean reversion techniques. Further results from this study reveal that few stocks have lead or lag relationship with the market index. Small sized stocks were detected to be more prone to outliers. In effect betas in the 19 th century exhibits similar pattern as betas in the post 1926 era.

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Section: Related Papersmentioning

confidence: 99%

The Behavior of Beta in the 19th Century

Mensah¹

2013

AFR

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“…Actually, the evidence of time varying covariances in individual common stocks has been found in many studies analyzing a variety of financial markets. For the US market, see Fabozzi andFrancis (1978), Sunder (1980), Bos and Newbold (1984), Collins, Ledolter and Rayburn (1987), and Bos and Fetherston (1995). Other markets include: Australia (see for example Brooks, Faff and Lee, 1992); Finland (Bos, Fetherston, Martikainen and Perttunen, 1995); Korea (Bos and Fetherston, 1992); Hong Kong (Cheng, 1997) and Malaysia (Brooks and Faff, 1997).…”

Section: Literature Reviewmentioning

confidence: 99%

The cross-sectional relationship between stock returns and domestic and global factors in the Chinese A-share market

Wang

Iorio

2007

Rev Quant Finan Acc

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“…Later studies have shown that betas tend to fluctuate over time. Early research on this phenomenon includes Fabozzi and Francis (1978), Sunder (1980), and Bos and Newbold (1984). Bodurtha and Mark (1991) provide a good overview of this literature.…”

Section: Time-varying Systematic Risk and Debt Marketsmentioning

confidence: 99%

Asian sovereign debt and country risk

Johansson

2010

Pacific-Basin Finance Journal

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This paper analyzes systematic risk of sovereign bonds in four East Asian countries: China, Malaysia, Philippines, and Thailand. A bivariate stochastic volatility model that allows for time-varying correlation is estimated with Markov Chain Monte Carlo simulation. The volatilities and correlation are then used to calculate the time-varying betas. The results show that country-specific systematic risk in Asian sovereign bonds varies over time. When adjusting for inherent exchange rate risk, the pattern of systematic risk is similar, even though the level is generally lower. The findings have important implications for international portfolio managers that invest in emerging sovereign bonds and those who need benchmark instruments to analyze risk in assets such as corporate bonds in the emerging Asian financial markets.

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Beta as a Random Coefficient

Cited by 331 publications

References 19 publications

The Behavior of Beta in the 19th Century

The Behavior of Beta in the 19th Century

The cross-sectional relationship between stock returns and domestic and global factors in the Chinese A-share market

Asian sovereign debt and country risk

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