Can Autoregressive Betas Account for the Statistical Properties of Stock Returns?

27 Pages Posted: 1 Jan 2010 Last revised: 18 Mar 2010

See all articles by Nikolaos Kourogenis

Nikolaos Kourogenis

University of Piraeus, Department of Banking and Financial Management

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management

Date Written: March 17, 2010

Abstract

This paper analyzes the implications of autoregressive betas in single factor models for the statistical properties of stock returns. It is demonstrated that this assumption alone is sufficient to account for the most important stylized facts of stock returns, namely conditional heteroscedasticity, leptokurtosis, weak serial correlation over short horizons, asymptotic independence and aggregational Gaussianity. This means that the autoregressive assumption of beta is sufficient to reproduce the observed non-linear dynamics of stock returns, even in the most extreme case in which both the factor and the non-systematic component follow Gaussian independent processes.

Keywords: autoregressive beta, stock returns, single factor model, serial correlation, conditional heteroscedasticity

JEL Classification: C22, G10, G11, G12

Suggested Citation

Kourogenis, Nikolaos and Pittis, Nikitas, Can Autoregressive Betas Account for the Statistical Properties of Stock Returns? (March 17, 2010). Available at SSRN: https://ssrn.com/abstract=1529995 or http://dx.doi.org/10.2139/ssrn.1529995

Nikolaos Kourogenis (Contact Author)

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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