Time-Varying Beta during the 2008 Financial Crisis \textendash Evidence from North America and Western Europe

I. Ben Slimane, Makram Bellalah () and Hatem Rjiba ()
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Makram Bellalah: CRIISEA - Centre de Recherche sur les Institutions, l'Industrie et les Systèmes Économiques d'Amiens - UR UPJV 3908 - UPJV - Université de Picardie Jules Verne

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Abstract: Purpose: This paper aims to analyze the impact of the global financial crisis on the conditional beta in the region of North America and Western Europe and the effect on the behavior and decisions of the investor. Design/methodology/approach: The authors model the variations of volatility in financial markets during crisis using the bivariate GARCH model of Engle and Kroner (1995). Findings: The empirical investigation identifies an additional effect of the crisis over the period of the test. Results indicate a rise in the beta in some cases and a fall in others. This rise had a direct impact on the systematic beta risk, which increased for the majority of the companies during the crisis period. The increase in beta during the crisis period has an effect on the behavior of the investor and his decisions. Research limitations/implications: The increase in the beta during the period of crisis due to a high volatility returns has an effect on the behavior and decisions of the investor. Originality/value: This paper examines the effects of the ``subprime crisis'' on the risk premium of companies in several sectors of activity. \textcopyright 2017, \textcopyright Emerald Publishing Limited.

Date: 2017
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Published in Journal of Risk Finance, 2017, 18 (4), pp.398--431. ⟨10.1108/JRF-02-2017-0020⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03680577

DOI: 10.1108/JRF-02-2017-0020

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