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[2003년 제 4차] Structural Shifts of Market Betas and the Market An
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2003-10-13
We reexamine the explanatory power of market betas for average stock returns and firm size after adjusting for structurak shift of betas. We find that whem the structural-shift-adjusted beta estimates are used, maket betas have significant positive relation with average stock returns, regardless of the presence or absence of firm size and book-to-market, We also find that the beta estimation errors caused by the ignorance of the structural shift of systematic risk are inversely related with firm size, and firm size becomes insignificant with correcting for the structural shift of betas. Contrary to firm size, book-to-market is robust with the correction for the structural shifr of betas. Although the results of this paper do not support the one-factor CAPM, we argue that market betas have stronger explanatory power for average stock returns than previous studies reported. Previous empirical findings that betas hanve no reliable relation with average stock returns therefore have been exaggerated partly because of their failure to correct to correct for the structural shifts of systematic risk.
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