Abstract
This paper models and explains the dynamics of market betas for 30 US industry portfolios between 1970 and 2009. We use DCC-MIDAS and kernel regression techniques as alternatives to the standard ex-post measures. We find betas to exhibit substantial persistence, time variation, ranking variability, and heterogeneity in their business cycle exposure. While we find only a limited amount of structural breaks in the betas of individual industries, we do identify a common structural break in March 1998. We propose two practical applications to understand the economic significance of these results. We find the cross-sectional dispersion in industry betas to be countercyclical and negatively related to future market returns. We also find DCC-MIDAS betas to outperform other beta measures in terms of limiting the downside risk and ex-post market exposure of a market-neutral minimum-variance strategy.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
