Temporary and Permanent Market Risks: Some Further Evidence

Mathematical and Computer Modelling, Forthcoming

Posted: 5 Oct 2006

See all articles by Michail S. Koubouros

Michail S. Koubouros

University of Peloponnese - Department of Economics

Dimitrios Malliaropulos

University of Piraeus - Department of Banking and Financial Management; National Bank of Greece

Ekaterini Panopoulou

Essex Business School

Abstract

We study the time-series behavior of portfolio and market specific dividend-growth rates' and discount rates' components of total market risk (CAPM beta). Employing a VAR(1)-GARCH(1,1) methodology and a set of US 20 single-sorted book-to-market and size portfolios from 1928-2001, we show that the decomposition of the single-factor beta delivers stable systematic risk measures and increases considerably the cross-sectional variation of the estimated betas across size and value portfolios. This feature may prove valuable in asset-pricing and calculations of the cost of equity capital.

Keywords: CAPM, cash-‡flow risk, discount-rate risk, VAR-GARCH, BEKK, value, size

JEL Classification: G11, G14

Suggested Citation

Koubouros, Michail S. and Malliaropulos, Dimitrios and Panopoulou, Ekaterini, Temporary and Permanent Market Risks: Some Further Evidence. Mathematical and Computer Modelling, Forthcoming, Available at SSRN: https://ssrn.com/abstract=934996

Michail S. Koubouros (Contact Author)

University of Peloponnese - Department of Economics ( email )

Tripolis, 22100
Greece

HOME PAGE: http://econ.uop.gr/~m.koubouros/

Dimitrios Malliaropulos

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
(+30) 210 3341527 (Phone)
(+30) 210 3341702 (Fax)

National Bank of Greece ( email )

86 Eolou Str.
10232 Athens
Greece
+30 1 3251133 (Fax)

Ekaterini Panopoulou

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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