Unit roots in the CAPM?

Markellos, Raphael N. and Mills, Terence C. (2001) Unit roots in the CAPM? Applied Economics Letters, 8 (8). pp. 499-502. ISSN 1350-4851

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Excess returns calculated using nonstationary risk-free interest rates will also be nonstationary and this may cause an unbalanced regression problem in the estimation of Capital Asset Pricing Models (CAPM). Under such circumstances, beta coefficients could be both biased and inconsistent. The implications of these issues are investigated through a simulation study and an empirical application using data on the FTA index and the 91-day UK Treasury Bill (T-Bill) rates. Although the simulation results are alarming, the empirical analysis suggests that the problem of unbalanced regression is not likely to cause significant problems in estimating the CAPM.

Item Type: Article
Faculty \ School: Faculty of Social Sciences > Norwich Business School
UEA Research Groups: Faculty of Social Sciences > Research Groups > Finance Group
Faculty of Social Sciences > Research Centres > Centre for Competition Policy
Depositing User: Pure Connector
Date Deposited: 04 Dec 2013 13:20
Last Modified: 18 Apr 2023 23:48
URI: https://ueaeprints.uea.ac.uk/id/eprint/45292
DOI: 10.1080/13504850010017690

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