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Clustering companies listed on the Warsaw Stock Exchange according to time-varying beta

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Szczepocki P.
Econometrics. Ekonometria. Advances in Applied Data Analytics
|
2019
|
issue vol. 23 no. 2
63-79
EN
The beta parameter is a popular tool for the evaluation of portfolio performance. The Sharpe single-index model is a simple regression model in which the stock’s returns are regressed against the returns of a broader index. The beta parameter is a measure of the strength of this relation. Extensive recent research has proved that the beta is not constant in time and should be modelled as a time-variant coefficient. One of the most popular methods of the estimation of a time-varying beta is the Kalman filter. As the output of the Kalman filter, one obtains a sequence of the estimates of a time-varying beta. This sequence shows the historical dynamics of sensitivity of a company’s returns to the variations of market returns. The article proposes a method of clustering companies listed on the Warsaw Stock Exchange according to time-varying betas.
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