Time-varying beta risk of australian industry portfolios

A comparison of modelling techniques

Robert D. Brooks, Robert W. Faff, Michael D. McKenzie

Research output: Contribution to journalArticle

90 Citations (Scopus)

Abstract

This paper investigates three techniques for the estimation of conditional time-dependent betas: (a) a multivariate generalised ARCH approach; (b) a time-varying beta market model approach suggested by Schwert and Seguin (1990); and (c) the Kalman filter technique. These approaches are applied to a sample of returns on Australian industry portfolios over the period 1974-1996. The evidence found in this paper, based on in-sample forecast errors, overwhelmingly supports the Kalman filter approach When out-of-sample forecasts are considered the evidence again finds in favour of the Kalman filter approach.

Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalAustralian Journal of Management
Volume23
Issue number1
DOIs
Publication statusPublished - 1998

Keywords

  • Garch
  • Kalman filter
  • Time-varying beta

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