Abstract
This project seeks to examine the dynamics of assets’ market beta factors. While in classical theory beta is simply constant, this perception is strongly rejected in the previous literature. However, not much is known about the underlying dynamics of beta.
Therefore, first, the project examines the term structure of beta and tests an expectations hypothesis for beta, analyzing the economic drivers of a potential term premium.
Second, the project examines the time-variation in beta. We test for mean reversion and study the economic news drivers of jumps in beta. Furthermore, we test whether the conditional CAPM holds on the daily and weekly horizon. Third, the project analyzes the parameter uncertainty surrounding the estimation of beta. We test whether investors require a risk premium for holding firms with higher beta uncertainty.
Project duration: 24 months
