Forward-Looking Beta Estimates: Evidence from an Emerging Market

22 Pages Posted: 9 Oct 2017

Date Written: October 6, 2017

Abstract

In this paper time-varying beta estimates for five key sectors in Kuwait stock market explored. The results of the paper support evidence of time-varying beta coefficients for all sectors included in the study. This result invalidates the standard application of Capital Asset Pricing Model (CAPM) that assumes constant beta coefficients. It is also indicated in the paper time-varying beta estimates are consistent with a modified version of CAPM prediction that is portfolios with wider range of beta variations expected to yield higher return values and those with lower range of beta variations yield lower returns. In this new context, risk is no longer is a point estimate as implied by the standard CAPM model, but it is a range. The paper also shows the size and the range of beta variations are sensitive to skewness and fat tailedness that characterize asset returns distribution.

Keywords: Beta, CAPM, GARCH, Volatility, Asymmetry

JEL Classification: C10, C50, G10

Suggested Citation

Onour, Ibrahim, Forward-Looking Beta Estimates: Evidence from an Emerging Market (October 6, 2017). Available at SSRN: https://ssrn.com/abstract=3049057 or http://dx.doi.org/10.2139/ssrn.3049057

Ibrahim Onour (Contact Author)

University of Khartoum ( email )

Shumbat
Khartoum North
Khartoum, Khartoum 13314
Sudan

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