TITLE

MARKET PHASE AND THE STATIONARITY OF BETA

AUTHOR(S)
Gooding, Arthur E.; O'Malley, Terence P.
PUB. DATE
December 1977
SOURCE
Journal of Financial & Quantitative Analysis;Dec77, Vol. 12 Issue 5, p833
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This article examines the stationarity of beta coefficients, especially in regard to recent, major stock market trends. In addition to the usual correlation tests for stationarity, this article describes a more direct method for testing the stationarity of portfolio betas. The method involves the use of paired beta tests which show separately the degree of stationarity for each portfolio beta. In the process of testing for stationarity, the portfolio betas also are adjusted for measurement error using a formulation. The empirical tests indicate that both non-adjusted and adjusted beta co- efficient for well-diversified portfolios of extreme risk levels are significantly nonstationary, and that these nonstationaries are influenced by major market trends as well. These findings, which confirm and extend suggest that persons using beta coefficients for risk and return research or investment insight, should adjust them for their "regression tendencies" and for expected market trends such as bear market betas for bear markets.
ACCESSION #
4757000

 

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