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Title:The nonstationarity of systematic risk for bonds / BEBR No. 497
Author(s):Jahankhani, Ali; Pinches, George E.
Contributor(s):University of Illinois at Urbana-Champaign. College of Commerce and Business Administration
Subject(s):Bonds.
Risk.
Issue Date:July 20 19
Publisher:[Urbana, Ill.] : College of Commerce and Business Administration, University of Illinois at Urbana-Champaign,
Series/Report:Faculty working papers ; no. 497
Type:Text
Language:English
Description:Includes bibliographical references (leaves 25-27).
"Recently a number of researchers have attempted to employ the market model to estimate systematic risk (i.e., beta) for bonds. In this study we reviewed theoretical evidence which suggests bond betas can be expected to be nonstationary. This nonstationarity is a function of the duration of a bond, the standard deviation of the change in the yield to maturity of a bond relative to the standard deviation of the return on the market portfolio, and the correlation between the change in the yield to maturity of a bond and the return on the market portfolio. However, all bonds will not necessarily have nonstationary betas in a given time period since it is possible that these factors may occasionally counteract one another."
"Empirical tests indicated that over 80 percent of the bonds examined had nonstationary betas. The primary factor differentiating bonds with nonstationary betas from those with stationary betas was the substantially higher relative standard deviation in the change in the yield to maturity for bonds with nonstationary betas. The larger standard deviation was caused by the higher average coupon rates and yields to maturity for bonds with nonstationary betas. The theoretical and empirical results of this study indicate bond betas, in general, tend to be nonstationary. Hence, fruther use of them appears to be of very questionable value."
URI:http://hdl.handle.net/2142/27639
Rights Information:Copyright July 20 1978 Board of Trustees University of Illinois.
Date Available in IDEALS:2011-09-15
Has Version(s):http://hdl.handle.net/10111/UIUCOCA:nonstationarityo497jaha
http://www.archive.org/details/nonstationarityo497jaha
Identifier in Online Catalog:321436
OCLC Identifier:(OCoLC)ocm05108837


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