Abstract
In this study we analyze the market beta coefficients of two large capitalization stocks, American International Group (AIG) and Citigroup, from 2005 to 2016 based on a capital asset pricing model (CAPM). Since the daily returns of stock prices experience structural changes in their underlying CAPM-type models, we detect the number and locations of change employing the residual-based cumulative sum (CUSUM) of squares test and then estimate the parameters for each sub-period to evaluate market risk. Moreover, using the quantile regression method, we explore the different behaviors of the market beta and lagged autoregressive effects for different sub-periods and quantile levels. Our final result pertains to the relationship between time-varying betas and structural breaks.
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Acknowledgements
We thank the editor and anonymous referee for their helpful comments. Cathy W.S. Chen’s research is funded by the Ministry of Science and Technology, Taiwan (MOST 105-2118-M-035-003-MY2 and MOST 103-2118-M-035-002-MY2). Sangyeol Lee’s research is supported by the Basic Science Research Program through the National Research Foundation of Korea (NRF) funded by the Ministry of Science, ICT and Future Planning (No. 2015R1A2A2A010003894).
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Chen, C.W.S., Khamthong, K., Lee, S. (2017). Structural Breaks of CAPM-type Market Model with Heteroskedasticity and Quantile Regression. In: Kreinovich, V., Sriboonchitta, S., Huynh, VN. (eds) Robustness in Econometrics. Studies in Computational Intelligence, vol 692. Springer, Cham. https://doi.org/10.1007/978-3-319-50742-2_8
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DOI: https://doi.org/10.1007/978-3-319-50742-2_8
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