Time-varying beta, market volatility and stress: A comparison between the United States and India

Abstract

This study examines the time-varying nature of industry betas in India and the United States to explore whether their observed behaviours are independent of the extent of development of the financial market. Such betas relate to the movements, particularly volatility and stresses, in the relevant markets. During 1999–2017, we found significant transmission of volatility from the domestic market to the time-varying betas in both countries. The emerging market betas are further found to increase under the domestic market stress. The developed market betas, however, were able to avoid market stresses or fall under stresses, thereby reducing the investment risk.

Keywords

• Time-varying beta
• Market risk
• Volatility
• Stress index
• MV GARCH model