Systematic Risk at the Industry Level: A Case Study of Australia

Thang Cong Nguyen, Tan Ngoc Vu, Duc Hong Vo and Michael McAleer
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Thang Cong Nguyen: Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 70000, Vietnam
Tan Ngoc Vu: Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 70000, Vietnam
Duc Hong Vo: Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 70000, Vietnam

Risks, 2020, vol. 8, issue 2, 1-12

Abstract: The cornerstone of the capital asset pricing model (CAPM) lies with its beta. The question of whether or not beta is dead has attracted great attention from academics and practitioners in the last 50 years or so, and the debate is still ongoing. Many empirical studies have been conducted to test the validity of beta within the framework of CAPM. However, it is a claim of this paper that beta at the industry level has been largely ignored in the current literature. This study is conducted to examine if beta, proxied for a systematic risk, should be considered valid in the application of the CAPM at the industry level for Australia using daily data on 2200 stocks listed on the Australian Securities Exchange from January 2007 to 31 December 2016. Various portfolio formations are utilized in this paper. General economic conditions such as interest rate, inflation, and GDP are examples of systematic risk. Findings from this study indicate that the selection of portfolio construction, estimation technique, and news about economic conditions significantly affects the view whether or not beta should be considered as a valid measure of systematic risk.

Keywords: systematic risk; beta; CAPM; industry; Australia (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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