Systematic Risk Characteristics of Corporate Equity

Geoffrey Shuetrim

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper finds evidence that firms may manipulate their systematic risk. This contrasts with previously held views that changes in estimates of systematic risk were an artefact of the estimators used. The central finding is that firms take actions which result in their equity betas adjusting toward unity, where equity betas are a common measure of systematic risk. This convergence phenomenon appears to result in older and larger firms having equity betas that are closer to unity than smaller and younger firms. The relationship between equity beta convergence and firm size is reconciled with the well documented negative correlation between equity betas and firm size. Also, greater deviations of systematic risk from the market average are found to be associated with a higher probability of being delisted. Having refuted the hypothesis that observed changes in systematic risk are an artefact of the estimation process, some implications for asset-market efficiency are explored.

Keywords: systematic risk; equity betas; convergence (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 1998-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp9802

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