Time varying country risk: an assessment of alternative modelling techniques

R. D. Brooks, Robert Faff and M. McKenzie

The European Journal of Finance, 2002, vol. 8, issue 3, 249-274

Abstract: Three different techniques for the estimation of a time-varying beta are investigated: a bivariate GARCH model, the Schwert and Seguin approach, and the Kalman filter method. These approaches are applied to a set of monthly Morgan Stanley country index data over the period 1970 to 1995 and their relative performances compared. In-sample forecast tests of the performance of each of these methods for generating conditional beta suggest that the GARCH-based estimates of risk generate the lowest forecast error although these are not necessarily significantly less than those generated by the other techniques considered.

Keywords: Time; Country Risk; Garch; Kalman Filter (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (23)

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DOI: 10.1080/13518470110074837

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