Time varying betas and the unconditional distribution of asset returns
Autor(a) principal: | |
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Data de Publicação: | 2012 |
Outros Autores: | , , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/1822/19676 |
Resumo: | This paper draws attention to the fact that under standard assumptions the time varying betas model cannot capture the dynamics in beta. Conversely, evidence of time variation in beta using this model is equivalent to non-normality in the unconditional distribution of asset returns. Using the multivariate normal as a model for the joint distribution of returns on market indices and predetermined information variables, it is shown how to capture skewness and kurtosis in the unconditional distributions of asset returns. Under the assumptions of the model, asset returns are unconditionally distributed as an extended quadratic form (EQF) in normal variables. Expressions are given for the moment generating function and for the computation of the distribution and density functions. The market-timing model is derived formally using this model. The properties of bias when the standard linear betas model is used to estimate alpha when the correct model is the EQF are also investigated. It is shown that a different time varying betas model can arise as a consequence of portfolio selection. It is also shown that the predetermined information variables have the potential to account for the time series properties of returns, including heterogeneity of variance. An empirical study applies the model to returns on 46 UK bond funds. An analysis of the residuals shows that the model described in this paper is able to capture the dynamics of alpha and beta and properly account for other features of the time series of returns for 28 of these funds, of which 15 exhibit time variation in beta. The study reports the effect of the EQF model on the computation of VaR and CVaR and bias in the estimation of alpha. |
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Time varying betas and the unconditional distribution of asset returnsBetaElliptical symmetryCVaRKurtosisMarket modelMarket timingMultivariate normalityQuadratic forms in normal variablesSkewnessVaRQuadratic formsSocial SciencesScience & TechnologyThis paper draws attention to the fact that under standard assumptions the time varying betas model cannot capture the dynamics in beta. Conversely, evidence of time variation in beta using this model is equivalent to non-normality in the unconditional distribution of asset returns. Using the multivariate normal as a model for the joint distribution of returns on market indices and predetermined information variables, it is shown how to capture skewness and kurtosis in the unconditional distributions of asset returns. Under the assumptions of the model, asset returns are unconditionally distributed as an extended quadratic form (EQF) in normal variables. Expressions are given for the moment generating function and for the computation of the distribution and density functions. The market-timing model is derived formally using this model. The properties of bias when the standard linear betas model is used to estimate alpha when the correct model is the EQF are also investigated. It is shown that a different time varying betas model can arise as a consequence of portfolio selection. It is also shown that the predetermined information variables have the potential to account for the time series properties of returns, including heterogeneity of variance. An empirical study applies the model to returns on 46 UK bond funds. An analysis of the residuals shows that the model described in this paper is able to capture the dynamics of alpha and beta and properly account for other features of the time series of returns for 28 of these funds, of which 15 exhibit time variation in beta. The study reports the effect of the EQF model on the computation of VaR and CVaR and bias in the estimation of alpha.Fundação para a Ciência e a Tecnologia (FCT)Taylor and FrancisUniversidade do MinhoAdcock, C. J.Cortez, Maria do CéuArmada, Manuel José da RochaSilva, Florinda20122012-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/1822/19676eng1469-768810.1080/14697688.2010.544667http://www.tandfonline.com/info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-07-21T12:45:57Zoai:repositorium.sdum.uminho.pt:1822/19676Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T19:43:53.347229Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Time varying betas and the unconditional distribution of asset returns |
title |
Time varying betas and the unconditional distribution of asset returns |
spellingShingle |
Time varying betas and the unconditional distribution of asset returns Adcock, C. J. Beta Elliptical symmetry CVaR Kurtosis Market model Market timing Multivariate normality Quadratic forms in normal variables Skewness VaR Quadratic forms Social Sciences Science & Technology |
title_short |
Time varying betas and the unconditional distribution of asset returns |
title_full |
Time varying betas and the unconditional distribution of asset returns |
title_fullStr |
Time varying betas and the unconditional distribution of asset returns |
title_full_unstemmed |
Time varying betas and the unconditional distribution of asset returns |
title_sort |
Time varying betas and the unconditional distribution of asset returns |
author |
Adcock, C. J. |
author_facet |
Adcock, C. J. Cortez, Maria do Céu Armada, Manuel José da Rocha Silva, Florinda |
author_role |
author |
author2 |
Cortez, Maria do Céu Armada, Manuel José da Rocha Silva, Florinda |
author2_role |
author author author |
dc.contributor.none.fl_str_mv |
Universidade do Minho |
dc.contributor.author.fl_str_mv |
Adcock, C. J. Cortez, Maria do Céu Armada, Manuel José da Rocha Silva, Florinda |
dc.subject.por.fl_str_mv |
Beta Elliptical symmetry CVaR Kurtosis Market model Market timing Multivariate normality Quadratic forms in normal variables Skewness VaR Quadratic forms Social Sciences Science & Technology |
topic |
Beta Elliptical symmetry CVaR Kurtosis Market model Market timing Multivariate normality Quadratic forms in normal variables Skewness VaR Quadratic forms Social Sciences Science & Technology |
description |
This paper draws attention to the fact that under standard assumptions the time varying betas model cannot capture the dynamics in beta. Conversely, evidence of time variation in beta using this model is equivalent to non-normality in the unconditional distribution of asset returns. Using the multivariate normal as a model for the joint distribution of returns on market indices and predetermined information variables, it is shown how to capture skewness and kurtosis in the unconditional distributions of asset returns. Under the assumptions of the model, asset returns are unconditionally distributed as an extended quadratic form (EQF) in normal variables. Expressions are given for the moment generating function and for the computation of the distribution and density functions. The market-timing model is derived formally using this model. The properties of bias when the standard linear betas model is used to estimate alpha when the correct model is the EQF are also investigated. It is shown that a different time varying betas model can arise as a consequence of portfolio selection. It is also shown that the predetermined information variables have the potential to account for the time series properties of returns, including heterogeneity of variance. An empirical study applies the model to returns on 46 UK bond funds. An analysis of the residuals shows that the model described in this paper is able to capture the dynamics of alpha and beta and properly account for other features of the time series of returns for 28 of these funds, of which 15 exhibit time variation in beta. The study reports the effect of the EQF model on the computation of VaR and CVaR and bias in the estimation of alpha. |
publishDate |
2012 |
dc.date.none.fl_str_mv |
2012 2012-01-01T00:00:00Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/1822/19676 |
url |
http://hdl.handle.net/1822/19676 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
1469-7688 10.1080/14697688.2010.544667 http://www.tandfonline.com/ |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Taylor and Francis |
publisher.none.fl_str_mv |
Taylor and Francis |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
instname_str |
Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799132998013026304 |