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Article: Smooth transition quantile capital asset pricing models with heteroscedasticity

TitleSmooth transition quantile capital asset pricing models with heteroscedasticity
Authors
KeywordsBayesian inference
CAPM
GARCH
Quantile regression
Skewed-laplace distribution
Issue Date2012
PublisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0927-7099
Citation
Computational Economics, 2012, v. 40 n. 1, p. 19-48 How to Cite?
AbstractCapital asset pricing model (CAPM) has become a fundamental tool in finance for assessing the cost of capital, risk management, portfolio diversification and other financial assets. It is generally believed that the market risks of the assets, often denoted by a beta coefficient, should change over time. In this paper, we model timevarying market betas in CAPM by a smooth transition regime switching CAPM with heteroscedasticity, which provides flexible nonlinear representation of market betas as well as flexible asymmetry and clustering in volatility. We also employ the quantile regression to investigate the nonlinear behavior in the market betas and volatility under various market conditions represented by different quantile levels. Parameter estimation is done by a Bayesian approach. Finally, we analyze some Dow Jones Industrial stocks to demonstrate our proposed models. The model selection method shows that the proposed smooth transition quantile CAPM-GARCH model is strongly preferred over a sharp threshold transition and a symmetric CAPM-GARCH model. © 2011 Springer Science+Business Media, LLC.
Persistent Identifierhttp://hdl.handle.net/10722/172497
ISSN
2015 Impact Factor: 0.691
2015 SCImago Journal Rankings: 0.240
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorChen, CWSen_US
dc.contributor.authorLin, Sen_US
dc.contributor.authorYu, PLHen_US
dc.date.accessioned2012-10-30T06:22:48Z-
dc.date.available2012-10-30T06:22:48Z-
dc.date.issued2012en_US
dc.identifier.citationComputational Economics, 2012, v. 40 n. 1, p. 19-48en_US
dc.identifier.issn0927-7099en_US
dc.identifier.urihttp://hdl.handle.net/10722/172497-
dc.description.abstractCapital asset pricing model (CAPM) has become a fundamental tool in finance for assessing the cost of capital, risk management, portfolio diversification and other financial assets. It is generally believed that the market risks of the assets, often denoted by a beta coefficient, should change over time. In this paper, we model timevarying market betas in CAPM by a smooth transition regime switching CAPM with heteroscedasticity, which provides flexible nonlinear representation of market betas as well as flexible asymmetry and clustering in volatility. We also employ the quantile regression to investigate the nonlinear behavior in the market betas and volatility under various market conditions represented by different quantile levels. Parameter estimation is done by a Bayesian approach. Finally, we analyze some Dow Jones Industrial stocks to demonstrate our proposed models. The model selection method shows that the proposed smooth transition quantile CAPM-GARCH model is strongly preferred over a sharp threshold transition and a symmetric CAPM-GARCH model. © 2011 Springer Science+Business Media, LLC.en_US
dc.languageengen_US
dc.publisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0927-7099en_US
dc.relation.ispartofComputational Economicsen_US
dc.rightsThe original publication is available at www.springerlink.com-
dc.subjectBayesian inferenceen_US
dc.subjectCAPMen_US
dc.subjectGARCHen_US
dc.subjectQuantile regressionen_US
dc.subjectSkewed-laplace distributionen_US
dc.titleSmooth transition quantile capital asset pricing models with heteroscedasticityen_US
dc.typeArticleen_US
dc.identifier.emailLin, S: chenws@fcu.edu.twen_US
dc.identifier.emailYu, PLH: plhyu@hku.hk-
dc.identifier.authorityYu, PLH=rp00835en_US
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1007/s10614-011-9266-yen_US
dc.identifier.scopuseid_2-s2.0-84860920229en_US
dc.identifier.hkuros210597-
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-84860920229&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume40en_US
dc.identifier.issue1en_US
dc.identifier.spage19en_US
dc.identifier.epage48en_US
dc.identifier.isiWOS:000304106300002-
dc.publisher.placeUnited Statesen_US
dc.identifier.scopusauthoridYu, PLH=7403599794en_US
dc.identifier.scopusauthoridLin, S=25934666100en_US
dc.identifier.scopusauthoridChen, CWS=36067962500en_US
dc.identifier.citeulike9112272-

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