Dynamic conditional betas and equity returns

摘要

Our study makes use of a new approach to estimate time-varying betas with an application of the corrected Dynamic Conditional Correlation (cDCC) model. Our empirical methodology encompasses an examination of predictive relations between equity return and different specifications of dynamic conditional beta, using cross-sectional regression analysis at both the portfolio and firm levels. Our main finding is a significant, positive relation between equity excess return and an interactive cross product term of dynamic conditional beta and market excess return (βr_m); suggesting that equity return is largely determined by an interaction effect between dynamic beta and market return.