Dynamic conditional betas and equity returns

Salvatore Joseph Terregrossa () and Veysel Eraslan ()
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Salvatore Joseph Terregrossa: Associate Professor, Department of Business Administration, Istanbul Aydin University, Istanbul 34295, Turkey
Veysel Eraslan: #x2020;Equity Market Specialist, Equity Markets Department, Borsa Istanbul, Istanbul 34467, Turkey

International Journal of Financial Engineering (IJFE), 2020, vol. 07, issue 04, 1-17

Abstract: Our study makes use of a new approach to estimate time-varyingbetas with an application of the corrected Dynamic Conditional Correlation (cDCC) model. Our empirical methodology encompasses an examination of predictive relations between equity return and different specifications of dynamic conditional beta, using cross-sectional regression analysis at both the portfolio and firm levels. Our main finding is a significant, positive relation between equity excess return and an interactive cross product term of dynamic conditional beta and market excess return (βrm); suggesting that equity return is largely determined by an interaction effect between dynamic beta and market return.

Keywords: Asset pricing; dynamic conditional correlation; dynamic conditional beta; asymmetric systematic risk; security market plane (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S2424786320500358

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