Capital asset pricing model: A time-varying volatility approach

Kun Ho Kim, Taejin Kim

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

In this paper, we propose a methodology to conduct uniform inference of volatility in the capital asset pricing model (CAPM). To that end, relevant theory is employed to construct the uniform confidence band of the volatility in the CAPM. The methodology is applied to the U.S. stock return data. The empirical results show strong evidence of co-movement among the volatility estimates for six U.S. stocks of large market capitalization. The hypothesis of constant volatility for the CAPM is rejected unanimously, mainly due to the surge in volatility in the early 2000s and during the 2008 financial crisis.

Original languageEnglish
Pages (from-to)268-281
Number of pages14
JournalJournal of Empirical Finance
Volume37
DOIs
StatePublished - 2016 Jun

Fingerprint

Capital asset pricing model
Time-varying volatility
Methodology
Financial crisis
Comovement
Stock returns
Market capitalization
Empirical results
Inference
Confidence

Keywords

  • Capital asset pricing model
  • Co-movement
  • Financial crisis
  • Idiosyncratic risk
  • Time-varying volatility
  • Uniform inference

Cite this

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Capital asset pricing model : A time-varying volatility approach. / Kim, Kun Ho; Kim, Taejin.

In: Journal of Empirical Finance, Vol. 37, 06.2016, p. 268-281.

Research output: Contribution to journalArticle

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