Time-varying beta risk of Pan-European industry portfolios: A comparison of alternative modeling techniques

Sascha Mergner () and Jan Bulla

The European Journal of Finance, 2008, vol. 14, issue 8, 771-802

Abstract: This paper investigates the time-varying behavior of systematic risk for 18 pan-European sectors. Using weekly data over the period 1987-2005, six different modeling techniques in addition to the standard constant coefficient model are employed: a bivariate t-GARCH(1,1) model, two Kalman filter (KF)-based approaches, a bivariate stochastic volatility model estimated via the efficient Monte Carlo likelihood technique as well as two Markov switching models. A comparison of ex-ante forecast performances of the different models indicate that the random walk process in connection with the KF is the preferred model to describe and forecast the time-varying behavior of sector betas in a European context.

Keywords: time-varying beta risk; Kalman filter; bivariate t-GARCH; stochastic volatility; efficient Monte Carlo likelihood; Markov switching; European industry portfolios (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:14:y:2008:i:8:p:771-802

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DOI: 10.1080/13518470802173396

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