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Estimation du Beta Tempo-fréquentiel de la Droite de Marché-Une approche par les ondelettes continues-

Time-Frequency varying Beta Estimation -A continuous wavelets approach-

Roman Mestre and Michel Terraza

MPRA Paper from University Library of Munich, Germany

Abstract: The Beta coefficient theorized by the CAPM is estimated by the Market Line. By hypothesis, the Beta is stable over time but empirical studies on it volatility don't confirm this fact. One of them is related to with agent heterogeneity hypothesis. In this paper; we study this hypothesis by continuous wavelets decomposition of the market line components. We use the wavelet Coherence to calculate a time-frequency Beta. We apply this methodology on three French listed stocks (AXA-LVMH-ORANGE) with different OLS beta for the daily period 2005-2015. We show that the coherence and the time-frequency Betas improve our understanding of the equity characteristics and nature according to their time and frequency dynamics. AXA and LVMH have globally an high coherence with the market whereas ORANGE coherence is low (whatever frequencies). These results can affect the time-frequency betas values. By analysing the betas we see different evolutions and dynamics which can be considered by portfolio managers to optimize their investment horizon. The continuous wavelets is a powerful tool for emphasize the time-frequency instabilities of betas. The hypothesis of heterogeneity of agents has an impact on systematic risk estimations and need to be considered in financial calculations.

Keywords: CAPM; Continuous Wavelets; Wavelets Coherence; Time-Frequency varying Betas (search for similar items in EconPapers)
JEL-codes: C13 C22 C58 G11 G12 (search for similar items in EconPapers)
Date: 2017-12
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