Time-varying beta and volatility in the Kuala Lumpur stock exchange

• Main Author: Perpustakaan UGM, i-lib
• Format: Article NonPeerReviewed
• Published: [Yogyakarta] : Universitas Gadjah Mada 2004
• Subjects: Jurnal i-lib UGM
• Online Access: https://repository.ugm.ac.id/21857/; http://i-lib.ugm.ac.id/jurnal/download.php?dataId=4734
• Institution: Universitas Gadjah Mada

The paper analyzes the relationship between beta risk and aggregate market volatility for 12 sized-based portfolios for the case of Malaysia using daily data from January 1988 to December 2000. The analysis is conducted for the entire sample as well as various sub-samples corresponding to (1) the upward trend in the market from January 1988-December 1992 (ii) the huge influx of portfolio investments from January 1993 - June 1997, and (iii) the Asian crisis and its aftermath from July 1997- December 2000. The results generally suggest instability in beta risk due to its significant response to aggregate market volatility. Additionally, we also note that the direction of relationship between beta risk and market volatility seems to depend on stock market conditions or sub-samples used. Namely, beta risk seems to decrease with increasing market volatility for the whole sample as well as the first and the third sub-samples. However, for the second sub-sample, their relationship turns to be positive. Lastly, the author have evidence for the Malaysian case that size does not play significant role in the way beta risk responds to aggregate market volatility. These results have important implications for investment decisions as well as for event analyses employing the market model to generate abnormal returns. Keywords: Augmented CAPM