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Monitoring the Parameters of the Market Model by Linear Profile Procedures
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Linda Lee Ho
Published/Copyright:
August 11, 2010
Abstract
The method to measure the market risk (which stocks are exposed) by the slope coefficient of a linear regression model (that relates the returns of the asset and the returns of a market index) is known as Market Model. When applying this method it is extremely important to check the stability of the parameters (the slope, the intercept and the variance) over the time to neutralize the market risk. Procedures known in statistical quality control as analysis of linear profiles are presented for such purpose. By statistical tests based on the F-statistics, it is possible to identify the sources of variation and also out-of-control samples. Numerical examples illustrate the proposed procedures.
Keywords.: Linear profile monitoring; stock's beta; market neutral; market model; linear regression model
Received: 2010-02-22
Published Online: 2010-08-11
Published in Print: 2010-April
© de Gruyter 2010
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Keywords for this article
Linear profile monitoring;
stock's beta;
market neutral;
market model;
linear regression model
Articles in the same Issue
- Editorial
- Optimal Replacement Policy Based on the Number of Down Times
- An L-Banded Approximation to the Inverse of Symmetric Toeplitz Matrices
- Selection of Mixed Sampling Plans for Second Quality Lots
- On New Perspectives for Statistical Computing in Business and Industry – A Solution with STATISTICA and R
- Reliability Analysis of k-out-of-n : G Repairable Shared Load Systems with Multiple Failures and Preventive Maintenance
- Monitoring the Parameters of the Market Model by Linear Profile Procedures
- An Addendum to the Estimators of Murthy–Sarma and Anis–Pandey of the Mean of the Normal Distribution
- A Bounded Intensity Process Reliability Growth Model in a Bayes-Decision Framework
- Optimal Structure in Heterogeneous Multi-state Series-parallel Reliability Systems
