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Beta through the prism of wavelets

Aasif Shah (), Arif Tali () and Qaiser Farooq ()
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Aasif Shah: Indian Institute of Technology Madras
Arif Tali: Pondicherry University
Qaiser Farooq: Pondicherry University

Authors registered in the RePEc Author Service: Qaiser Farooq Dar ()

Financial Innovation, 2018, vol. 4, issue 1, 1-17

Abstract: Abstract In this paper, we empirically show how wavelet decomposition can provide an easy vehicle to study the systematic risk properties of return series to serve as protocol for different traders who view the market with different time resolutions. By using the separate catalogue of Large Cap, Mid Cap and Small Cap stocks comprising S&P BSE-500 index of Indian capital market, we report that the conventional beta coefficients estimated from CAPM are essentially an average of wavelet betas but the later provides a resolution more appropriate and hence need to be considered in a realistic risk assessment of securities. Additionally, the wavelet beta coefficients for Large Cap stocks are found more stable than Mid and Small capitalized stocks. This paper is the first attempt of its kind to link the underlying methodology across different capitalized stocks to identify the precise beta in a complex market behavior.

Keywords: CAPM; Beta; Wavelet (search for similar items in EconPapers)
JEL-codes: C22 C49 G21 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1186/s40854-018-0102-4

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