Stationarity and Regression Tendencies of Security and Portfolio Betas in India
8 Pages Posted: 25 Feb 2007
Date Written: February 1, 2007
Undoubtedly beta has emerged as the most popular measure of risk of security and portfolio returns. The historic betas are generally used as the estimates of future betas. Only when the betas are stationary, using past betas as estimates makes sense.
Using the monthly returns of 660 companies over 12 year period (95,040 company months), this paper examines the stationarity of betas in Indian security markets as well as the tendency of betas in successive time period to regress towards mean beta of one.
The results in general are similar to those found in the earlier studies. The market explains around 13 percent variation in security returns. The betas for individual securities and smaller sized portfolios are not stable over time. The betas have a regression tendency to move towards the mean beta of 1.
Keywords: Beta, Stationarity, Regression Tendencies, Systematic Risk, Portfolio Risk
JEL Classification: G00, G11, G12, G19, G30, G31
Suggested Citation: Suggested Citation