Multiscale systematic risk

Date

2005

Authors

Gençay, R.
Selçuk, F.
Whitcher, B.

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Abstract

In this paper we propose a new approach to estimating systematic risk (the beta of an asset). The proposed method is based on a wavelet multiscaling approach that decomposes a given time series on a scale-by-scale basis. The empirical results from different economies show that the relationship between the return of a portfolio and its beta becomes stronger as the wavelet scale increases. Therefore, the predictions of the CAPM model should be investigated considering the multiscale nature of risk and return. © 2004 Elsevier Ltd. All rights reserved.

Source Title

Journal of International Money and Finance

Publisher

Pergamon Press

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Published Version (Please cite this version)

Language

English