Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/239208 
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 13 [Issue:] 6 [Publisher:] MDPI [Place:] Basel [Year:] 2020 [Pages:] 1-30
Publisher: 
MDPI, Basel
Abstract: 
We present a modelling approach for sector asset pricing studies that incorporates sector-level risk factors, subgroup portfolios, and structural breakpoint tests that are better at isolating the time-varying nature and the firm-specific component of returns. Our results show considerable subsector heterogeneity, while the asset pricing model using local risk factors and inductive structural breaks results in a superior model ( R2 of 80.42% relative to R2 of 68.79% of "conventional" models). Finally, we show that some of the variances of residuals, normally assumed to be the firm-specific component of returns, can be attributed to the changing relationship between sector returns and risk factors.
Subjects: 
asset pricing
stock market
structural breaks
sector analysis
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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