Capital asset pricing model: A time-varying volatility approach

Kun Ho Kim and Taejin Kim

Journal of Empirical Finance, 2016, vol. 37, issue C, 268-281

Abstract: In this paper, we propose a methodology to conduct uniform inference of volatility in the capital asset pricing model (CAPM). To that end, relevant theory is employed to construct the uniform confidence band of the volatility in the CAPM. The methodology is applied to the U.S. stock return data. The empirical results show strong evidence of co-movement among the volatility estimates for six U.S. stocks of large market capitalization. The hypothesis of constant volatility for the CAPM is rejected unanimously, mainly due to the surge in volatility in the early 2000s and during the 2008 financial crisis.

Keywords: Capital asset pricing model; Time-varying volatility; Idiosyncratic risk; Uniform inference; Co-movement; Financial crisis (search for similar items in EconPapers)
JEL-codes: C12 C13 C14 G01 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:37:y:2016:i:c:p:268-281

DOI: 10.1016/j.jempfin.2016.01.014

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