WORKING PAPERS SERIES
WP00-02
Evolving Systems of Financial Returns:
Auto-Regressive Conditional Beta
George A. Christodoulakis and Steve Satchell
!"#$"%&' ()*+,-* #. /%&0&1%0$ 2,+34&*5
63+#2,'4,**%", 7#&8%+%#&0$ 9,+0
0.8
1.0
1.2
1.4
1.6
1.8
200
400
600
800
1000
1200
1400
UK Beta to EU
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
200
400
600
800
1000
1200
1400
UK Beta to Japan
-1.0
-0.5
0.0
0.5
1.0
200
400
600
800
1000
1200
1400
UK Beta to US
UK 1973-2000
weekly data, ARCBeta(1,1)
GRAPH I
0.6
0.7
0.8
0.9
1.0
1.1
200
400
600
800
1000
1200
1400
French Beta to EU
0.056
0.057
0.058
0.059
0.060
0.061
0.062
0.063
200
400
600
800
1000
1200
1400
French Beta to Japan
-0.1
0.0
0.1
0.2
0.3
0.4
200
400
600
800
1000
1200
1400
French Beta to US
France 1973-2000
weekly data, ARCBeta(1,1)
GRAPH II
0.6
0.7
0.8
0.9
1.0
1.1
200
400
600
800
1000
1200
1400
German Beta to EU
-0.4
-0.2
0.0
0.2
0.4
0.6
200
400
600
800
1000
1200
1400
German Beta to Japan
-0.1
0.0
0.1
0.2
0.3
200
400
600
800
1000
1200
1400
German Beta to US
Germany 1973-2000
weekly data, ARCBeta(1,1)
GRAPH III
0.04
0.02
0
0.02
0.04
0.06
0.08
c
0.2
0.15
0.1
0.05
0
-0.05
-0.1
-0.15
a
0.14
0.12
0.1
0.08
0.06
0.04
0.02
1.8
1.6
1.4
1.2
1
0.8
0.6
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
!
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List of other working papers:
2000
1. Soosung Hwang and Steve Satchell , Valuing Information Using Utility Functions, WP00-06
2. Soosung Hwang, Properties of Cross-sectional Volatility, WP00-05
3. Soosung Hwang and Steve Satchell, Calculating the Miss-specification in Beta from Using a
Proxy for the Market Portfolio, WP00-04
4. Laun Middleton and Stephen Satchell, Deriving the APT when the Number of Factors is
Unknown, WP00-03
5. George A. Christodoulakis and Steve Satchell, Evolving Systems of Financial Returns: Auto-
Regressive Conditional Beta, WP00-02
6. Christian S. Pedersen and Stephen Satchell, Evaluating the Performance of Nearest
Neighbour Algorithms when Forecasting US Industry Returns, WP00-01
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