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Time-varying Industrial Portfolio Betas under the Regime-switching Model: Evidence from the Stock Exchange of Thailand

Applied Economics Journal

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Field Value
 
Title Time-varying Industrial Portfolio Betas under the Regime-switching Model: Evidence from the Stock Exchange of Thailand
 
Creator Prukumpai, Suthawan; Department of Accounting, Faculty of Business Administration, Kasetsart University
Bangkok 10900, Thailand
 
Subject Conditional-CAPM, Markov-Switching Model, Stock Exchange of Thailand
C58, G10, G12
 
Description Applications of beta are crucial in determining equity pricing and portfolio strategy. The conditional Capital Asset Pricing Model (CAPM) theory suggests thatsystematic risk factor (henceforth “beta”) is changing over time. Therefore, this paper investigates the time-varying beta behavior in the Stock Exchange of Thailand using the two-regime Markov-switching model. The monthly returns of eight industrial portfolios from July 2005 to September 2014were used in this study. In comparison, the results from the unconditional CAPM beta and three-year rolling regression show that betas are unstable over time. In addition, the linearity LR tests confirmed non-linearity in all of the industrial portfolio returns, suggesting that betas are time-varying. The empirical results from the Markov-switching model showed that the conditional betas could be classified into two regimes: low beta one and high beta one. Overall, the results confirmed that the systematic risk of industrial portfolios is time-varying and regime-dependent. Therefore, the performance of asset allocation and risk management strategies could be improved if investors considered the regime-switching behavior of industrial portfolio returns in the portfolio construction instead of the traditional approach with constant beta.
 
Publisher The Center for Applied Economics Research (CAER)
 
Contributor —
 
Date 2016-05-21
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.tci-thaijo.org/index.php/AEJ/article/view/57289
 
Source Applied Economics Journal; Vol 22, No 2 (2015): DECEMBER; 54-76
0858-9291
 
Relation http://www.tci-thaijo.org/index.php/AEJ/article/view/57289/47502
 
Rights Copyright (c) 2016 Applied Economics Journal
http://creativecommons.org/licenses/by-nc-nd/4.0