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Clustering Companies Listed on the Warsaw Stock Exchange According to Time-Varying Beta

Authors
  • Szczepocki, Piotr
Type
Published Article
Journal
Econometrics
Publisher
Sciendo
Publication Date
Jun 01, 2019
Volume
23
Issue
2
Pages
63–79
Identifiers
DOI: 10.15611/eada.2019.2.05
Source
De Gruyter
Keywords
License
Green

Abstract

The beta parameter is a popular tool for the evaluation of portfolio performance. The Sharpe single-index model is a simple regression model in which the stock’s returns are regressed against the returns of a broader index. The beta parameter is a measure of the strength of this relation. Extensive recent research has proved that the beta is not constant in time and should be modelled as a time-variant coefficient. One of the most popular methods of the estimation of a time-varying beta is the Kalman filter. As the output of the Kalman filter, one obtains a sequence of the estimates of a time-varying beta. This sequence shows the historical dynamics of sensitivity of a company’s returns to the variations of market returns. The article proposes a method of clustering companies listed on the Warsaw Stock Exchange according to time-varying betas.

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