September 11 and time-varying beta of United States companies

Taufiq Choudhry

59 citations0/0 files storedApplied Financial Economics

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Market Dynamics and Volatility

Abstract

The tragic events of 11 September 2001 in the USA is said to have adversely affected the global economy and the financial markets around the world. This paper empirically investigates the effects of the terrorist attacks and the period after on the time-varying beta (risk) of a few companies in the USA. Daily data from 1991 to 2002 and the bivariate MA-GARCH model are applied to create the time-varying betas for the firms. Results indicate that September 11 events and the period after affected most of the US companies under investigation. The size and direction of the effect varies according to the firms. All companies did not experience an increase in their beta.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1978Specification Tests in Econometrics 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.]1952Portfolio Selection 1995Multivariate Simultaneous Generalized ARCH 1992ARCH modeling in finance 1988A Capital Asset Pricing Model with Time-Varying Covariances

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