A number of studies exist across a range of equity markets showing that a significant proportion of stocks in those markets have betas that vary over time. A research challenge posed by this body of evidence is to identify the factors that explain this time variation in individual stock betas....

The finance literature is replete with studies using the market model (MM) and the quadratic market model (QMM) as the return generating model. An alternative model, using the quadratic market model framework, was adopted by Barone-Adesi (1985) to test a two factor APT model related to the Three...

Three different techniques for the estimation of a time-varying beta are investigated: a bivariate GARCH model, the Schwert and Seguin approach, and the Kalman filter method. These approaches are applied to a set of monthly Morgan Stanley country index data over the period 1970 to 1995 and their...

Although many studies have found a non-trivial incidence of beta instability for individual common stocks, there exists controversy over the beta stability characteristics to expect in portfolios formed from these stocks. The extent is examined to which portfolio formation can diversify away...

This paper extends the existing literature into the relationship between beta stability and the length of the estimation period. Specifically of our analysis in the use of powerful new econometrics tests and their application to non-US data, namely, Australian monthly stock returns.