Clustering Companies Listed on the Warsaw Stock Exchange According to Time-Varying Beta

Szczepocki Piotr ()
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Szczepocki Piotr: University of Lodz, Lodz, Poland

Econometrics. Advances in Applied Data Analysis, 2019, vol. 23, issue 2, 63-79

Abstract: The beta parameter is a popular tool for the evaluation of portfolio performance. The Sharpe single-index model is a simple regression model in which the stock’s returns are regressed against the returns of a broader index. The beta parameter is a measure of the strength of this relation. Extensive recent research has proved that the beta is not constant in time and should be modelled as a time-variant coefficient. One of the most popular methods of the estimation of a time-varying beta is the Kalman filter. As the output of the Kalman filter, one obtains a sequence of the estimates of a time-varying beta. This sequence shows the historical dynamics of sensitivity of a company’s returns to the variations of market returns. The article proposes a method of clustering companies listed on the Warsaw Stock Exchange according to time-varying betas.

Keywords: time series clustering; cluster analysis; time-varying beta (search for similar items in EconPapers)
JEL-codes: C38 C58 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:vrs:eaiada:v:23:y:2019:i:2:p:63-79:n:5

DOI: 10.15611/eada.2019.2.05

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