Time-varying beta during the 2008 financial crisis - evidence from North America and Western Europe

摘要

Purpose: This paper aims to analyze the impact of the global financial crisis on the conditional beta in the region of North America and Western Europe and the effect on the behavior and decisions of the investor. Design/methodology/approach: The authors model the variations of volatility in financial markets during crisis using the bivariate GARCH model of Engle and Kroner (1995). Findings: The empirical investigation identifies an additional effect of the crisis over the period of the test. Results indicate a rise in the beta in some cases and a fall in others. This rise had a direct impact on the systematic beta risk, which increased for the majority of the companies during the crisis period. The increase in beta during the crisis period has an effect on the behavior of the investor and his decisions. Research limitations/implications: The increase in the beta during the period of crisis due to a high volatility returns has an effect on the behavior and decisions of the investor. Originality/value: This paper examines the effects of the “subprime crisis” on the risk premium of companies in several sectors of activity.