Regime-Switching Market Risk: Evidence from the Philippines

  • Joel C. Yu College of Business Administration, UP
  • Daniel Goyeau University of Poitiers
  • Carlos C. Bautista UP College of Business Administration

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, College of Business Administration, UP
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
2011-04-13
Section
Articles

Keywords

Markov-switching; time-varying betas; market risk; CAPM