Beta Risk and Regime Shift in Market Volatility

18 Pages Posted: 1 Nov 2004

See all articles by Roland George Shami

Roland George Shami

Monash University

Don U. A. Galagedera

Monash University - Department of Econometrics and Business Statistics

Date Written: April 2004

Abstract

In this paper, we relate security returns in the thirty securities in the Dow Jones index to regime shifts in the market portfolio (S&P500) volatility. We model market volatility as a Markov switching process of order one and estimate non-diversifiable security risk (beta) in the different market volatility regimes. We test the significance of the premium of the beta risk associated with the different market regimes and find evidence of a relationship between security return and beta risk when conditional on the up and down market movement.

Keywords: Markov regime-switching, market volatility, beta risk

JEL Classification: G12, G15

Suggested Citation

Shami, Roland George and Galagedera, Don (Tissa) U. A., Beta Risk and Regime Shift in Market Volatility (April 2004). Available at SSRN: https://ssrn.com/abstract=612022 or http://dx.doi.org/10.2139/ssrn.612022

Roland George Shami (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Don (Tissa) U. A. Galagedera

Monash University - Department of Econometrics and Business Statistics ( email )

900 Dandenong Road
Caulfield East, VIC 3145
Australia
+61 3 9903 1578 (Phone)
+61 3 9903 2007 (Fax)

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