Time-varying Beta Risk of Pan-European Industry Portfolios: A Comparison of Alternative Modeling Techniques

Sascha Mergner and Jan Bulla
Additional contact information
Sascha Mergner: AMB Generali Asset Managers

Finance from EconWPA

Abstract: This paper investigates the time-varying behavior of systematic risk for eighteen pan-European sectors. Using weekly data over the period 1987- 2005, four different modeling techniques in addition to the standard constant coefficient model are employed: a bivariate t-GARCH(1,1) model, two Kalman filter 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 the different models' ex-ante forecast performances indicates that the random walk process in connection with the Kalman filter is the preferred model to describe and forecast the time-varying behavior of sector betas in a European context. Remarkably, the Markov switching models yield a worse out-of-sample performance than standard OLS.

Keywords: Markov switching; Kalman filter; stochastic volatility; efficient Monte Carlo likelihood; bivariate t-GARCH; European industry portfolios; time-varying beta risk (search for similar items in EconPapers)
JEL-codes: C22 C32 G10 G12 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-ets, nep-fin, nep-fmk and nep-for
Date: 2005-10-26
Note: Type of Document - pdf; pages: 44. Extension of an earlier paper by the first author ('Time-varying beta risk of pan-European sectors') that adds two Markov switching models to the analysis.
View list of references

Downloads: (external link)
http://129.3.20.41/eps/fin/papers/0510/0510029.pdf (application/pdf)

Related works:
Journal Article: Time-varying beta risk of Pan-European industry portfolios: A comparison of alternative modeling techniques (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0510029

Access Statistics for this paper

More papers in Finance from EconWPA
Series data maintained by EconWPA ().