On the Use of the Family of Beta Distribution in Testing Tradeoff Between Risk and Return. Bayesian Analysis for WIG Excess Returns

• Autorzy: Mateusz Pipień
• Języki publikacji: EN

Abstrakty

EN

The main goal of this paper is an application of Bayesian inference in testing the relation between risk and return of the financial time series. On the basis of the Intertemporal CAPM model, proposed by Merton (1973), we built a general sampling model suitable in analysing such relationship. The most important feature of our model assumptions is that the possible skewness of conditional distribution of returns is used as an alternative source of relation between risk and return. Thus, pure statistical feature of the sampling model is equipped with economic interpretation. This general specification relates to GARCH-In-Mean model proposed by Osiewalski and Pipień (2000). In order to make conditional distribution of financial returns skewed we considered a constructive approach based on the inverse probability integral transformation. In particular, we apply Beta distribution transformation with two free parameters; see Jones and Faddy (2003). Based on the daily excess returns on the Warsaw Stock Exchange Index we checked the total impact of conditional skewness assumption on the relation between return and risk on the Warsaw Stock Market. Posterior inference about skewness mechanism confirmed positive and decisively significant relationship between expected return and risk. (fragment of text)

Słowa kluczowe

EN

Bayesian models; Warsaw Stock Exchange Index; Equity market

PL

Modele bayesowskie; Warszawski Indeks Giełdowy (WIG); Rynek akcji

• Czasopismo: Dynamic Econometric Models
• Rocznik: 2008
• Tom: 8
• Strony: 61--65

Twórcy

autor

Mateusz Pipień

• Cracow University of Economics, Poland

Bibliografia

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• Ferreira, H., Stell, M. F. J. (2006), A Constructive Representation of Univariate Skewed Distributions, Journal of the American Statistical Association, 101, 823-839.
• Harvey, C. R., Siddique, A. (2000) Conditional Skewness in Asset Pricing Models, Journal of Finance, 55, 1263-1295.
• Jones, M. C., Faddy, M. J. (2003) A Skew Extension of the t-Distribution, with Applications, Journal of Royal Statistical Association B, 65, 159-174.
• Merton, R. C. (1973) An Intertemporal Capital Asset Pricing Model, Econometrica, 41, 867-887.
• Osiewalski, J., Pipień, M., (2000) GARCH-In-Mean through Skewed t Conditional Distributions: Bayesian Inference for Exchange Rates, w: Welfe, W., Wdowiński, P. (red.), 26-th International Conference MACROMODELS'99, Łódź , 354-369.
• Pipień, M. (2006), Bayesian Comparison of GARCH Processes with Skewness Mechanism in Conditional Ditributions, Acta Physica Polonica B, 37, 3105-3121.