Some Further Evidence on the Stochastic Properties of Systematic Risk

Daniel W Collins, Johannes Ledolter and Judy Dawson Rayburn

The Journal of Business, 1987, vol. 60, issue 3, 425-48

Abstract: Although there is consensus in the finance literature that the beta risk of equity securities is stochastic, there is considerable disagreement as to whether the var iation is purely random or exhibits autocorrelation through time. To investigate this issue, the authors employ a model that allows beta t o exhibit both random and autoregressive behavior simultaneously. The y test this model against alternative specifications on a large sampl e of individual securities and randomly formed portfolios comprising 10, 50, and 100 securities. Results are also presented for portfolios formed according to firm size. Copyright 1987 by the University of Chicago.

Date: 1987
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