Document Type

Conference Proceeding

Publisher

Modelling and Simulation Society of Australia and New Zealand and International Association for Mathematics and Computers in Simulation

Faculty

Faculty of Business and Law

School

School of Accounting, Finance and Economics

RAS ID

9145

Comments

This is an Author's Accepted Manuscript of: Allen, D. E., & Bujang, I. (2009). Conditional beta capital asset pricing model (CAPM) and duration dependence tests. Proceedings of MODSIM 09. (pp. 1107-1112). Cairns. Modelling and Simulation Society of Australia and New Zealand and International Association for Mathematics and Computers in Simulation. Available here

Abstract

This paper uses a sample of 50 companies continuously listed on Main Board of Bursa Malaysia from January 1994 until December 2001 and uses duration dependence tests whilst applying two asset pricing models based on the CAPM; the two Factor Model developed by Fama and French (F&F)(1998) and Ferson, Sarkissian and Simin’s (FSS) (2008) conditional beta model applied to estimate the conditional beta of CAPM as to generate the positive and negative abnormal returns. The findings suggest that both the Log Logistic and Weibull hazard models seem to support the existence of negative duration dependence for both positive and negative runs of abnormal returns, consistent with the presence of bubbles theory as predicted by McQueen and Thorley (1994). The negative runs of abnormal returns for both the F&F and FSS models show that more than 80% of the sample seems to support the existence of negative duration dependenceusing both hazard models. Meanwhile the positive runs show that not more than 80% of the sample rejects the null hypothesis based on LR tests of the absence of duration dependence. This study also compare whether the estimation of the run lengths of positive and negative abnormal returns for both F&F and FSS models are significantly different. The results suggest that the number of runs for both models by F&F and FSS are significantly different.

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