This paper investigates the effect of good or bad news (the asymmetric effect) on the time-varying beta of firms in the UK during good periods (booms) and bad periods (recessions). Daily data from twenty five UK firms of different sizes and from different industries are applied in the empirical tests. The data ranges from 2004 to 2010, which includes the current global financial crisis. The time-varying betas are created by means of the bivariate BEKK GARCH model, and then linear regressions are applied to test for the asymmetric effect of news on the beta. The asymmetric effects are investigated based on both market and non-market shocks. Most firms and industries seem to support the market efficiency hypothesis during both periods. However, the level of market efficiency seems to decline significantly from the pre-crisis to crisis period. Both the results of market efficiency and declining market efficiency from the pre-crisis to crisis periods provide ample evidence of the asymmetric effect of the financial crisis on the beta of UK firms.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Sep 20, 2013
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