[Forum SIS] Bocconi DEC Seminar Carl Chiarella - October 20th at 1pm

[Marco Bonetti]

Dear Colleagues,

The Department of Decision Sciences (DEC) of Bocconi University is  
pleased to invite you to the seminar:

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DEC Seminar
Università Bocconi,
Room 3-E4-SR03
Via Roentgen 1 - 3rd floor
Time: 13.00

Tuesday, October 20th

Carl Chiarella
(School of Finance and Economics, University of Technology, Sydney)


"Time-Varying Beta: a boundedly rational equilibrium approach"

Abstract:

By taking into account conditional expectations and the dependence of  
the systematic risk
of asset returns on micro- and macro-economic factors, the conditional  
CAPM with time-varying
betas displays superiority in explaining the crosssection of returns  
and anomalies in a number of
empirical studies. Most of the literature on time-varying beta is  
motivated by econometric
estimation rather than explicit modelling of the stochastic behaviour  
of betas through agents’
behaviour. Within the mean-variance framework of repeated one-period  
optimisation, we set up a
boundedly rational dynamic equilibrium model of a financial market  
with heterogeneous agents and
obtain an explicit dynamic CAPM relation between the expected  
equilibrium returns and time-varying
betas. By incorporating the three most popular types of investors,  
fundamentalists, chartists and
noise traders, into the model, we show that, independent of the  
fundamentals, there is a systematic
change in the market portfolio, risk-return relationships, and time  
varying betas when investors change
their behaviour, such as the chartists acting as momentumtraders. In  
particular, we demonstrate the
stochastic nature of time-varying betas and show that the commonly  
used rolling window estimates of
time-varying betas may not be consistent with the ex-ante betas  
implied by the equilibrium model.
The results provide a number of insights into an understanding of time- 
varying beta.
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Sincerely,

Marco Bonetti



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Marco Bonetti
Department of Decision Sciences
Bocconi University
Via Guglielmo Roentgen 1
20136 Milan, Italy
Tel +39 02 58365670
Fax +39 02 58365634

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