Analyse Temps-fréquence du MEDAF –Application au CAC 40 –

Time-Frequency Analysis of CAPM- Application to the CAC 40-

Roman Mestre and Michel Terraza

MPRA Paper from University Library of Munich, Germany

Abstract: The market’s line estimation implicitly assumes that its parameters are constant over time. Investors, who use the beta of this line for build their portfolio, have a similar behavior whatever their investment horizon. We discuss this hypothesis in this article using the technique of wavelets providing the time evolution of different frequencies trading. We have a sample period 2005 - 2015 covering both quiet and disturbed fluctuations of the CAC 40 and its components. We verify the expected result of market's line statistical weaknesses and the high volatility of its parameters. We show that there is a market 's line which differs over time, revealing significant changes of the beta, and we use this results to group the components of the CAC according to their characteristics. The use of wavelets notably improves our results and user's choice concerning his portfolios elaboration according to the horizon of its investments. Particularly, we show that keep overall market's line, whatever the period, is equivalent to consider stock selection by the beta for a short-term horizon. So we propose a methodology based on time-frequency analysis that lead to an overview of stock characteristics useful to portfolio managers.

Keywords: Market Line; Wavelets; MODWT; Frequency Betas (search for similar items in EconPapers)
JEL-codes: C58 G00 G11 G12 (search for similar items in EconPapers)
Date: 2017-10-01
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:86272

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