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Time-Frequency Analysis of capm: Application to the cac 40

Roman Mestre and Michel Terraza
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Michel Terraza: University of Montpellier, France

Managing Global Transitions, 2018, vol. 16, issue 2 (Summer), 141-157

Abstract: The market line estimation implicitly assumes that its parameters are constant over time supposing whatever the investment horizon, the investors have a similar behaviour. In this paper,we discuss this hypothesis using the technique of wavelets. First, we verify the expected result concerning the statistical weaknesses of market line and the high volatility of its parameters. Second, we use the wavelets to estimate the frequency betas. We show that the classic beta (estimated with OLS) considers a short-run beta. We propose a methodology based on time-frequency analysis that leads to an overview of equities characteristics useful to portfolio managers.

Keywords: market line; wavelets; MODWT; frequency betas (search for similar items in EconPapers)
JEL-codes: G00 G11 G12 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Time-Frequency Analysis of CAPM: Application to the CAC 40 (2018)
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DOI: 10.26493/1854-6935.16.141-157

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