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Capital asset pricing model in Portugal: Evidence from fractal regressions

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Abstract

We examine risk profiles of the Portuguese stock market index component stocks using a novel approach to the classical capital asset pricing model (CAPM). Specifically, we estimate the CAPM via fractal regressions that allow studying the marginal effects at selected scales. In this way, we can reveal whether the risk is perceived differently by market participants with different investment horizons. Apart from the analysis itself, we provide new statistical insights into the issue of separating and comparing the scale-specific effects with statistical validity. We find several stocks deviating from an expected risk perception homogeneity across investment horizons. This is true for both analysed periods, i.e. before and after the global financial crisis. There are also several stocks that changed their relationship to the market portfolio in between, which has strong implications for possible portfolio construction. The proposed methodology is not limited to financial topics but can be used in any discipline where the scale-specific marginal effects might be of interest.

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Notes

  1. It is also possible to find other studies of Portuguese stocks. For example, Alpalhão and Alves (2005) use a specific model to analyse how the Portuguese market behaves in relation to its risk exposure, concluding that the market has higher risk exposure than other European ones. Curto et al. (2003) and Ferreira and Dionísio (2014) analyse the existence of dependence in some stock markets, including the Portuguese one. Lobão and Azeredo (2018) investigate the momentum effect and value-growth effect in the Portuguese stock market.

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Acknowledgments

Paulo Ferreira is pleased to acknowledge financial support from Fundação para a Ciência e a Tecnologia (grant UID/ECO/04007/2013) and FEDER/COMPETE (POCI-01-0145-FEDER-007659). Ladislav Kristoufek gratefully acknowledges financial support of the Czech Science Foundation (project 17-12386Y).

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Authors and Affiliations

  1. Institute of Information Theory and Automation, Czech Academy of Sciences, Pod Vodarenskouvezi 4, CZ-18208, Prague, Czech Republic

    Ladislav Kristoufek

  2. VALORIZA - Research Center for Endogenous Resource Valorization, Portalegre, Portugal

    Paulo Ferreira

  3. CEFAGE-UE, IIFA, Universidade de Évora, Largo dos Colegiais 2, 7000, Évora, Portugal

    Paulo Ferreira

  4. Instituto Politécnico de Portalegre, Portalegre, Portugal

    Paulo Ferreira

Authors
  1. Ladislav Kristoufek
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  2. Paulo Ferreira
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Correspondence to Paulo Ferreira.

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Kristoufek, L., Ferreira, P. Capital asset pricing model in Portugal: Evidence from fractal regressions. Port Econ J 17, 173–183 (2018). https://doi.org/10.1007/s10258-018-0145-5

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  • DOI: https://doi.org/10.1007/s10258-018-0145-5

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