Computer-Intensive Time-Varying Model Approach to the Systematic Risk of Australian Industrial Stock Returns

J. Yao, Jiti Gao

    Research output: Contribution to journalArticle

    Abstract

    This paper aims to investigate the form of systematic risk of Australian industrial stock returns. We suggest using four stochastic state-space models for the analysis. The stochastic properties of systematic risk are studied by examining four classes of state-space models: random walk model, random coefficient model, ARMA(1, 1) model and mean reverting model (or moving mean model). We have found that the industrial portfolio betas are unstable. The variation of industrial portfolio beta is either random or mean-reverting. Among the nineteen industrial groups, ten of them have the mean-reverting process betas but six of them seem to have a moving long-term mean. Five of the industrial groups have the random process betas, more specifically; the betas of three of them are the random walk processes while the betas of the other two are just the random coefficients. We have also identified that the betas of five industrial groups seem to follow an ARMR(1,1) process.
    Original languageEnglish
    Pages (from-to)121-145
    JournalAustralian Journal of Management
    Volume29
    Issue number1
    Publication statusPublished - 2004

    Fingerprint

    Systematic risk
    Time-varying
    Stock returns
    Mean-reverting
    State-space model
    Random walk
    Random coefficient models
    Random walk model
    Autoregressive moving average
    Mean-reverting process
    Random coefficients

    Cite this

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    abstract = "This paper aims to investigate the form of systematic risk of Australian industrial stock returns. We suggest using four stochastic state-space models for the analysis. The stochastic properties of systematic risk are studied by examining four classes of state-space models: random walk model, random coefficient model, ARMA(1, 1) model and mean reverting model (or moving mean model). We have found that the industrial portfolio betas are unstable. The variation of industrial portfolio beta is either random or mean-reverting. Among the nineteen industrial groups, ten of them have the mean-reverting process betas but six of them seem to have a moving long-term mean. Five of the industrial groups have the random process betas, more specifically; the betas of three of them are the random walk processes while the betas of the other two are just the random coefficients. We have also identified that the betas of five industrial groups seem to follow an ARMR(1,1) process.",
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    Computer-Intensive Time-Varying Model Approach to the Systematic Risk of Australian Industrial Stock Returns. / Yao, J.; Gao, Jiti.

    In: Australian Journal of Management, Vol. 29, No. 1, 2004, p. 121-145.

    Research output: Contribution to journalArticle

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