Time-Varying Market Betadoes the estimation methodology matter?

  1. Nieto Domenech, Belén
  2. Orbe Mandaluniz, Susan
  3. Zarraga Alonso, Ainhoa
Revista:
Sort: Statistics and Operations Research Transactions

ISSN: 1696-2281

Año de publicación: 2014

Volumen: 38

Número: 1

Páginas: 13-42

Tipo: Artículo

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Otras publicaciones en: Sort: Statistics and Operations Research Transactions

Resumen

This paper compares the performance of nine time-varying beta estimates taken from three different methodologies never previously compared: least-square estimators including nonparametric weights, GARCH-based estimators and Kalman filter estimators. The analysis is applied to the Mexican stock market (2003-2009) because of the high dispersion in betas. The comparison be- tween estimators relies on their financial applications: asset pricing and portfolio management. Results show that Kalman filter estimators with random coefficients outperform the others in capturing both the time series of market risk and their cross-sectional relation with mean returns, while more volatile estimators are better for diversification purposes.

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