Article2003

Robust estimation of systematic risk using the t distribution in the chilean stock markets

David Cademartori · Cecilia Romo · Ricardo Campos-Espinoza · Manuel Galea

18 citations0/0 files storedApplied Economics Letters

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Advanced Statistical Methods and Models

Abstract

This article deals with the estimate of the systematic risk of a share, assuming that returns follow an independent t distribution. In order to analyse the sensibility to possible outliers and/or atypical returns of the maximum likelihood estimator of the systematic risk, the local influence method was implemented. The results are illustrated by using a set of shares of companies belonging to the Chilean stock market. The main conclusion is that the t model with small degrees of freedom is able to incorporate possible outliers and influential returns in the data.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1965The Behavior of Stock-Market Prices 1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]1966Equilibrium in a Capital Asset Market 1997The Econometrics of Financial Markets 1982Modern Portfolio Theory and Investment Analysis.1974A Comparison of the Stable and Student Distributions as Statistical Models for Stock Prices

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