Time-varying industry beta in Indian stock market and forecasting errors

Abstract

Purpose – The purpose of this paper is to empirically estimate industry beta in Indian stock market with three alternative models and compare the accuracy of forecasting error to find the most suitable model for time-varying beta estimation. Design/methodology/approach – The paper applies the standard regression model, Kalman filter model, other statistical approaches and secondary material. Findings – The paper finds that the existence of dynamic beta in Indian market. The results also indicate systematic risk or beta of Indian industries is susceptible to the global economic effect. Finally, the Kalman filter generates the lower forecasting error compared to the other method for almost all the industries. Practical implications – The accurate estimation of beta which is a measure of systematic risk helps investors to make investment decision easier. The implication of this result is important for finance practitioners such as portfolio managers, investment advisors and security analysts. This study will help to determine the country risk with respect to the global index and analyze the global financial market integration effect on India. Originality/value – This paper reliably estimate industry portfolio beta for India. The time-varying beta is estimated using Kalman filter method which is rarely applied in Indian literature. This paper contributes by extending the knowledge of existing literature by introducing a new data set with Indian data which is not affected by the “data snooping” bias. This study will also help to determine the country risk with respect to the global index and analyze the global financial market integration effect on India.

Impact of regulatory announcements on systemic risk in the Indian telecom sector

“…This study found that systemic risk ( β ) is not constant over the studied sample period as it is time varying in nature, which indicated that developing countries stock markets are volatile and dynamic in nature. This was in line with the study finding of Das and Barai (2015) that Indian stock markets are volatile in nature.…”

Investigating the Dynamics of Exchange Traded Funds Across the Bear and Bull Markets: Evidence from Indian Equity ETFs

“…Mollik and Bepari (2010) tested the applicability of CAPM for 110 stocks listed at Dhaka stock exchange and found beta to exhibit both interperiod as well as intra-period non-stationarity. In Indian context, Shah and Moonis (2003) and Das and Barai (2015) found evidence in support of beta being a time-varying phenomenon affected by extreme global events hitting the stock market.…”

International Journal of Emerging Markets: a bibliometric review 2006–2020

“…To understand the role of beliefs in consumer behaviour, Gopi and Ramayah (2007), based on of theory of planned behaviour, concluded that attitude, subjective norm and perceived Lee and Tai (2006), Rajagopal (2007), Gopi and Ramayah (2007), Saffu and Scott (2009), Lee and Tai (2009), Srivastava (2010) Adaoglu and Katircioglu (2013), Das and Barai (2015), Ahmed (2017) Bonaglia and Goldstein (2006), Todd and Javalgi (2007), Baack and Boggs (2008), Singh et al (2010), Varma (2011, Singal andJain (2012), Binachi (2014), Cassia and Magno (2015), Wan et al (2015), Chaves (2018) (continued ) Rajagopal (2007) illustrated that strategic product positioning and effective retailing enhance consumer perception of organic products to understand green consumerism. Issock et al (2020) enumerated that consumption values, to some extent, impact green customer satisfaction, resulting in green customer trust and loyalty and positive word of mouth.…”

“…To investigate the weekend effect, Al-Khazali et al (2010), using the stochastic dominance (SD) approach, concluded that the Saturday effect is not exhibited in three Gulf Stock Markets. Das and Barai (2015) calculated the beta in the Indian stock market using regression and, further using the Kalman filter model, analysed the influence of the global economic environment on the riskiness of Indian markets. To understand the impact of political uncertainty on market behaviour, Ahmed (2017) found that political uncertainty profoundly impacts the risk-return profile of all sectors of Egypt's equity market behaviour.…”