Nonlinearities in the CAPM: Evidence from Developed and Emerging Markets
JOURNAL OF FORECASTING, cilt.36, sa.8, ss.867-897, 2017 (SSCI, Scopus)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 36 Sayı: 8
- Basım Tarihi: 2017
- Doi Numarası: 10.1002/for.2389
- Dergi Adı: JOURNAL OF FORECASTING
- Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
- Sayfa Sayıları: ss.867-897
- Anahtar Kelimeler: CAPM, time-varying market model, co-skewness and co-kurtosis, quadratic and cubic market model, RISK, EQUILIBRIUM, RETURNS, SKEWNESS, TESTS
- Açık Arşiv Koleksiyonu: AVESİS Açık Erişim Koleksiyonu
- Eskişehir Osmangazi Üniversitesi Adresli: Evet
Özet
This paper examines the forecasting ability of the nonlinear specifications of the market model. We propose a conditional two-moment market model with a time-varying systematic covariance (beta) risk in the form of a mean reverting process of the state-space model via the Kalman filter algorithm. In addition, we account for the systematic component of co-skewness and co-kurtosis by considering higher moments. The analysis is implemented using data from the stock indices of several developed and emerging stock markets. The empirical findings favour the time-varying market model approaches, which outperform linear model specifications both in terms of model fit and predictability. Precisely, higher moments are necessary for datasets that involve structural changes and/or market inefficiencies which are common in most of the emerging stock markets. Copyright (c) 2016 John Wiley & Sons, Ltd.