Conditional risk-return relationship in a time-varying beta model

Peng Huang () and C. Hueng

Quantitative Finance, 2008, vol. 8, issue 4, 381-390

Abstract: We investigate the asymmetric risk-return relationship in a time-varying beta CAPM. A state space model is established and estimated by the Adaptive Least Squares with Kalman foundations proposed by McCulloch. Using S&P 500 daily data from 1987:11-2003:12, we find a positive risk-return relationship in the up market (positive market excess returns) and a negative relationship in the down market (negative market excess returns). This supports the argument of Pettengill et al., who use a constant beta model. However, our model outperforms theirs by eliminating the unexplained returns and improving the accuracy of the estimated risk price.

Keywords: Capital asset pricing; Time varying parameter models; Asymmetric risk-return relationship (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/14697680701191361 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:8:y:2008:i:4:p:381-390

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697680701191361

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().