Volume 8, Issue 4, October 2014, Pages 1850–1859
Mouna Boujelbene Abbes1, Amen Aissi2, and Abderrazak Ellouze3
1 Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia
2 Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia
3 Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia
Original language: English
Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
In this study, we test whether investor learning, herding, and prospect theory explain the variation of beta across different return regimes and return frequencies. Empirically, we use quantile regressions to analyze beta change on the French financial market from January 2000 to December 2012.
For daily data, we find a larger estimated impact of systematic shocks on extreme quantiles of firm's returns as compared to intermediate quantiles. The beta pattern is probably symmetrically suggesting that whatever the type of shocks have similar effects. This finding can be explained by herding behavior and investor learning. These behaviors lead to beta- increasing in the extreme returns case.
For monthly data, beta evolves asymmetrically across return regimes with a greater impact of the market in the lower tail of returns distribution. This finding provides strong evidence in favor of prospect theory explanation. Overall, constant beta estimated by ordinary-least squares overestimates the systematic risk of stock in normal times and underestimate the risk in extreme conditions or financial crisis.
Author Keywords: systematic risk, quantile regression, investor learning, herding, prospect theory, behavioral finance.
Mouna Boujelbene Abbes1, Amen Aissi2, and Abderrazak Ellouze3
1 Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia
2 Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia
3 Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of airport, km 4.5, LP 1088, Sfax 3018, Tunisia
Original language: English
Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
In this study, we test whether investor learning, herding, and prospect theory explain the variation of beta across different return regimes and return frequencies. Empirically, we use quantile regressions to analyze beta change on the French financial market from January 2000 to December 2012.
For daily data, we find a larger estimated impact of systematic shocks on extreme quantiles of firm's returns as compared to intermediate quantiles. The beta pattern is probably symmetrically suggesting that whatever the type of shocks have similar effects. This finding can be explained by herding behavior and investor learning. These behaviors lead to beta- increasing in the extreme returns case.
For monthly data, beta evolves asymmetrically across return regimes with a greater impact of the market in the lower tail of returns distribution. This finding provides strong evidence in favor of prospect theory explanation. Overall, constant beta estimated by ordinary-least squares overestimates the systematic risk of stock in normal times and underestimate the risk in extreme conditions or financial crisis.
Author Keywords: systematic risk, quantile regression, investor learning, herding, prospect theory, behavioral finance.
How to Cite this Article
Mouna Boujelbene Abbes, Amen Aissi, and Abderrazak Ellouze, “Behavioral explanation of beta variation: French market case,” International Journal of Innovation and Applied Studies, vol. 8, no. 4, pp. 1850–1859, October 2014.
