Regime-Switching Market Risk: Evidence from the Philippines

  • Joel C. Yu UP College of Business Administration
  • Daniel Goyeau University of Poitiers
  • Carlos C. Bautista UP College of Business Administration
Keywords: Markov-switching, time-varying betas, market risk, CAPM

Abstract

This paper presents an alternative approach in measuring time variation in market risk. Using equity returns in the Philippines, we employ a Markov-switching model to estimate market risk that varies with occasional and discrete shifts in states. Results show that the technique is a productive alternative in evaluating the market risk of firms in the Philippines. Shifts in the market risk seem to be related to market developments, which can have a permanent or transient change in the volatilities of security returns relative to that of the market.

Author Biographies

Joel C. Yu, UP College of Business Administration

Associate Professor, Department of Accounting and Finance

Daniel Goyeau, University of Poitiers

Centre de Recherche sur l’Intégration Economique et Financière

Carlos C. Bautista, UP College of Business Administration

Professor, Department of Accounting and Finance

Published
2011-05-31
Section
Articles