Testing for time variation in beta in India∗
نویسندگان
چکیده
The beta of a stock is important in a variety of contexts, ranging from the cost of capital, asset pricing theory, to hedging using index derivatives. It is common to measure betas by estimating the market model using straight ols in obtaining beta estimates. This assumes that betas are constant, despite strong economic arguments in favour of time–varying betas. In this paper, we test for time–varying betas, in the context of a market model with garch errors, using the modified Kalman filter of Harvey et al. (1992). The null of beta constancy is rejected for 52% of stocks. This has significant implications for portfolio diversification and hedging. JEL classification: G12
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