Systematic risk at the industry level: A case study of Australia

Thang Cong Nguyen; Tan Ngoc Vu; Duc Hong Vo; Michael McAleer

doi:10.3390/risks8020036

Systematic risk at the industry level: A case study of Australia

Thang Cong Nguyen, Tan Ngoc Vu, Duc Hong Vo^*, Michael McAleer

^*Corresponding author for this work

Econometrics

Research output: Contribution to journal › Article › Academic › peer-review

3 Citations (Scopus)

Abstract

The cornerstone of the capital asset pricing model (CAPM) lies with its beta. The question of whether or not beta is dead has attracted great attention from academics and practitioners in the last 50 years or so, and the debate is still ongoing. Many empirical studies have been conducted to test the validity of beta within the framework of CAPM. However, it is a claim of this paper that beta at the industry level has been largely ignored in the current literature. This study is conducted to examine if beta, proxied for a systematic risk, should be considered valid in the application of the CAPM at the industry level for Australia using daily data on 2200 stocks listed on the Australian Securities Exchange from January 2007 to 31 December 2016. Various portfolio formations are utilized in this paper. General economic conditions such as interest rate, inflation, and GDP are examples of systematic risk. Findings from this study indicate that the selection of portfolio construction, estimation technique, and news about economic conditions significantly affects the view whether or not beta should be considered as a valid measure of systematic risk.

Original language	English
Article number	36
Journal	Risks
Volume	8
Issue number	2
DOIs	https://doi.org/10.3390/risks8020036
Publication status	Published - 13 Apr 2020

Bibliographical note

Funding Information:
This research was funded by Ho Chi Minh City Open University grant number E2019.25.3 and the APC was funded by Ho Chi Minh City Open University Acknowledgments: The authors are most grateful to three reviewers for very helpful comments and suggestions. The fourth author is most grateful to the Australian Research Council and Ministry of Science and Technology (MOST), Taiwan.

Publisher Copyright:
© 2020 by the authors. Licensee MDPI, Basel, Switzerland.

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abstract = "The cornerstone of the capital asset pricing model (CAPM) lies with its beta. The question of whether or not beta is dead has attracted great attention from academics and practitioners in the last 50 years or so, and the debate is still ongoing. Many empirical studies have been conducted to test the validity of beta within the framework of CAPM. However, it is a claim of this paper that beta at the industry level has been largely ignored in the current literature. This study is conducted to examine if beta, proxied for a systematic risk, should be considered valid in the application of the CAPM at the industry level for Australia using daily data on 2200 stocks listed on the Australian Securities Exchange from January 2007 to 31 December 2016. Various portfolio formations are utilized in this paper. General economic conditions such as interest rate, inflation, and GDP are examples of systematic risk. Findings from this study indicate that the selection of portfolio construction, estimation technique, and news about economic conditions significantly affects the view whether or not beta should be considered as a valid measure of systematic risk.",

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Systematic risk at the industry level: A case study of Australia

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