Shifts in beta and the TARP announcement

Andrew Phin, Todd Prono, Jonathan J. Reeves and Konark Saxena

Finance Research Letters, 2022, vol. 47, issue PB

Abstract: Using high frequency return data, we propose a method for detecting level shifts in stock betas in the context of an event study. Using this method, we identify significant beta changes around the initial announcement of the Troubled Asset Relief Program (TARP). Our findings have important implications for studies of TARP that assume betas remain unchanged following the program’s announcement. Pre-TARP betas are found to be poor measures of post-TARP systematic risk exposure. Holding these betas fixed at pre-TARP levels in the estimation of cumulative abnormal returns (CARs) risks distorting the magnitudes of these CARs by multiple orders.

Keywords: Event study; Realized beta; Intra-day returns; Systematic risk (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000320

DOI: 10.1016/j.frl.2022.102704

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