Time-varying estimates of CAPM betas

Nicolaas Groenewold and Patricia Fraser

Mathematics and Computers in Simulation (MATCOM), 1999, vol. 48, issue 4, 531-539

Abstract: It is well known that the CAPM beta is not stable over time. We investigate the nature of the time-variation in betas using monthly Australian data from 1979 to 1994 for 23 sectors. We discuss beta estimates for sub-periods and tests of the statistical adequacy of the market model used to estimate the betas. We estimate time-varying betas using recursive regressions, rolling regressions and using the Kalman Filter. We find considerable time-variation in the estimated betas and find that many are non-stationary. We estimate a simple model which explains the variation in each of the betas in terms of a time trend, allowing for a break both in level and in trend at October 1987. The model explains a large proportion of the variation in the betas over the sample period for most of the sectors.

Keywords: Time-varying estimate; CAPM beta; Recursive beta (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:48:y:1999:i:4:p:531-539

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