On the stability of the CAPM before and after the financial crisis: Panel evidence from the Johannesburg Securities Exchange
Jun 1, 2017·
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1 min read
Paul Alagidede
Nikolaos Koutounidis
Theodore Panagiotidis
Abstract
This study examines the stability of the CAPM before and after the recent global financial crisis in the Johannesburg Securities Exchange (JSE). Firms’ betas are derived from OLS and M-estimation regressions. Fixed and random effects are employed to estimate the linear and the nonlinear version of the CAPM. Evidence against a stable beta emerges after the crisis but not before. The latter holds for the non-linear paradigm as well.
Type
Publication
African Review of Economics and Finance, 9(1)
Note: This paper is based on my bachelor thesis work and represents early-stage research. While it has been published in a peer-reviewed journal, it should be considered in the context of undergraduate-level research.
This study contributes to the literature on asset pricing models and their stability during financial crises, with a focus on emerging markets.
Key Findings
- Pre-Crisis Stability: CAPM betas were stable before the 2008 financial crisis
- Post-Crisis Instability: Evidence of beta instability emerges after the crisis
- Nonlinear Effects: The instability holds for both linear and nonlinear versions of CAPM
- Emerging Market Context: Results specific to the South African market (JSE)
Methodology
The study employs panel data techniques including:
- Fixed and random effects estimation
- OLS and M-estimation for beta calculation
- Linear and nonlinear CAPM specifications
- Pre- and post-crisis sample analysis
Keywords: Panel data; CAPM; South Africa; Global financial crisis
