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: Suggested Citation