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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

5 Issues per year


IMPACT FACTOR 2016: 0.649

CiteScore 2016: 0.63

SCImago Journal Rank (SJR) 2016: 0.546
Source Normalized Impact per Paper (SNIP) 2016: 0.793

Mathematical Citation Quotient (MCQ) 2016: 0.03

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1558-3708
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Volume 6, Issue 4 (Mar 2003)

Issues

Time-Varying Betas Help in Asset Pricing: The Threshold CAPM

Levent Akdeniz / Aslihan Altay-Salih / Mehmet Caner
Published Online: 2003-03-11 | DOI: https://doi.org/10.2202/1558-3708.1101

Although there is a consensus about time variation in market betas, it is not clear how this variation should be captured. Several researchers continue to analyze different versions of the conditional CAPM. However, Ghysels (1998) shows that these conditional CAPM models fail to capture the dynamics of beta risk. In this study, we introduce a new model, threshold CAPM, which outperforms both the conditional and unconditional CAPMs by generating smaller pricing errors. We also show that the beta risk changes through time with the changes in the economic environment and the dynamics of time variation of beta differ across industries. These findings have important implications for asset allocation, portfolio selection, and hedging decisions.

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Published Online: 2003-03-11


Citation Information: Studies in Nonlinear Dynamics & Econometrics, ISSN (Online) 1558-3708, DOI: https://doi.org/10.2202/1558-3708.1101.

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