Quarterly Journal of Quantitative Economics (JQE)

Systematic Risk Estimation at Different Time Scales, by Using Wavelets Analysis an Application on Tehran Stock Exchange

https://doi.org/10.22055/jqe.2009.10685
Volume 6, Issue 23 - Serial Number 4
Spring 2010
Pages 29-50
Quarterly Journal of Quantitative Economics (JQE)

Document Type : Research Paper

Authors

Ali Ghanbari
Mohsen Khezri
Roghie Torky Samaei
Abstract
The capital asset pricing model (CAPM) states that the expected return on an asset depends upon its level of systematic risk. The asset’s systematic risk is measured relative to that of the market portfolio. This paper attempts to estimate the CAPM at different time scales. In this study, we adopt wavelets analysis, a relatively new and innovative approach in finance proposed by Gencay et al. (2002), as the key empirical method for examining the relationship between the return of the stock and its systematic risk at different time scales. The proposed procedure is acted on a sample, composed of 15 selected stocks, listed on Tehran Stock Exchange (TSE) actively traded over 2004-2009. It has proved that the relationship between the return of a stock and its beta is more robust at medium and short scales. This evidence shows that the Tehran Stock Exchange market is more efficient in the 1 until 4 scale (2-32 days). This finding, therefore, shows that the predictions of the CAPM are more relevant at short and medium-term horizon and in a multi-scale framework as compared to the other horizons.

Keywords

Wavelets
CAPM
systematic risk
TSE
  • Receive Date 02 July 2014
  • First Publish Date 02 July 2014
  • Publish Date 22 December 2009

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