Beta Risk and Regime Shift in Market Volatility

Don Galagedera and Roland G. Shami

No 126, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: In this paper, we relate security returns in the thirty securities in the Dow Jones index to regime shifts in the market portfolio (S&P500) volatility. We model market volatility as a multiple-state Markov switching process of order one and estimate non-diversifiable security risk (beta) in the different market volatility regimes. We test the significance of the premium of the beta risk associated with the different market regimes and find evidence of a relationship between security return and beta risk when conditional on the up and down market movement.

Keywords: Markov regime-switching; Market volatility; Beta risk. (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-cfn, nep-ets, nep-fin and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecm:ausm04:126

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