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Modeling Time-Varying Conditional Betas. A Comparison of Methods with Application for REITs

Author

Listed:
  • Aloy, Marcel
  • Laly, Floris

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Laurent, Sébastien
  • Lecourt, Christelle
Abstract
Beta coefficients are the cornerstone of asset pricing theory in the CAPM and multiple factor models. This chapter proposes a review of different time series models used to estimate static and time-varying betas, and a comparison on real data. The analysis is performed on the USA and developed Europe REIT markets over the period 2009–2019 via a two-factor model. We evaluate the performance of the different techniques in terms of in-sample estimates as well as through an out-of-sample tracking exercise. Results show that dynamic models clearly outperform static models and that both the state space and autoregressive conditional beta models outperform the other methods.

Suggested Citation

  • Aloy, Marcel & Laly, Floris & Laurent, Sébastien & Lecourt, Christelle, 2021. "Modeling Time-Varying Conditional Betas. A Comparison of Methods with Application for REITs," LIDAM Reprints LFIN 2021021, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2021021
    DOI: https://doi.org/10.1007/978-3-030-54252-8_9
    Note: In: Recent Econometric Techniques for Macroeconomic and Financial Data / G. Dufrénot and T. Matsuki (eds.). Springer, 2021, p. 229-264
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    Keywords

    Real estate ; REITs ; Multivariate GARCH ; State space ; Dynamic conditional beta ; Autoregressive conditional beta;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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