Measuring the Relationship Between Intraday Returns, Volatility Spillovers, and Market Beta During Financial Distress

André Heymans () and Wayne Brewer
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André Heymans: North-West University
Wayne Brewer: North-West University

Chapter Chapter 5 in Business Research, 2023, pp 77-98 from Springer

Abstract: Abstract This study provides an additional measure to market beta to construct a more efficient portfolio. The additional measure analyses the volatility spillover effects between stocks within the same portfolio. Using intraday stock returns from five top-40 listed stocks on the JSE between July 2008 and April 2010, volatility spillover effects were estimated within a residual-based test (aggregate shock [AS] model) framework. It was shown that when a particular stock attracts fewer spillover effects from the other stocks in the portfolio, then the overall portfolio volatility decreased as well. In most cases, market beta showcased similar results. Therefore, to construct a more efficient portfolio, one requires both a portfolio that has a unit correlation with the market (beta-based), but also includes stocks with the least amount of volatility spillover effects among each other. To test the impact of volatility spillover effects among stocks in a portfolio on the overall portfolio volatility, this research had to follow an experimental approach—constructing a proxy portfolio by means of a Monte Carlo simulation. Since the spillover effects between the simulated stocks and the portfolio could be measured in absolute terms, the research best suited to this investigation was a deductive approach, following from a positivist research philosophy.

Keywords: Deductive approach; Efficient market hypothesis; Experimental research; Market beta; Volatility spillovers (search for similar items in EconPapers)
JEL-codes: C12 C15 C22 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-19-9479-1_5

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DOI: 10.1007/978-981-19-9479-1_5

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