Tests of regime-switching CAPM under price limits

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Title:	Tests of regime-switching CAPM under price limits
Authors:	黃河泉;Huang, Ho-chuan
Contributors:	淡江大學財務金融學系
Keywords:	CAPM;Price limit;Regime switching;Gibbs sampler;Data augmentation
Date:	2003-01-01
Issue Date:	2009-11-30 17:51:05 (UTC+8)
Publisher:	Elsevier
Abstract:	This paper incorporates two specific features in the test of capital asset pricing model (CAPM). The first, or empirical, one is to allow the systematic risk β to come from two different regimes to capture the instability found in the previous studies. The second, or institutional, one is to consider the censoring effect caused by the implementation of price limit regulation. Under price limit regulation, the observed returns need not be equal to the equilibrium ones if the closing prices reach limits. The caused econometric problems seem to be very challenging but can be resolved by the Gibbs sampler with data augmentation algorithm. A simple illustrative example is provided by using the data from the Taiwan Stock Exchange where the price limit system is adopted. The general results suggest that β's are unstable over time and the data may be consistent with CAPM in one regime but inconsistent in the other regime.
Relation:	International Review of Economics and Finance 12(3), pp.305-326
DOI:	10.1016/S1059-0560(03)00013-3
Appears in Collections:	[Graduate Institute & Department of Banking and Finance] Journal Article

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