Work detail

Investment horizon in the CAPM: A comparison of a wavelet-based decomposition and the fractal regression

Author: Mgr. Radek Spousta
Year: 2021 - summer
Leaders: prof. PhDr. Ladislav Krištoufek Ph.D.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 78
Awards and prizes:
Link: https://dspace.cuni.cz/handle/20.500.11956/150312
Abstract: This thesis study two promising methods used to define the multiscale CAPM – the
wavelet-based decomposition and the fractal regression. Their estimates, obtained
on monthly excess return on ten portfolios formed on beta in the US market, are
compared in the period from November 2000 to October 2020 and, subsequently,
in the period from November 1965 to October 2020. In the first period, the
multiscale beta is not significantly different from the original single-scale beta for
most of the portfolios. Contrary, both methods uncover significant multiscale
behavior of the beta in the second period. Specifically, the high-beta portfolios have
higher multiscale beta at longer investment horizons, mainly at wavelet scale 3 and
scales 12–24 of the fractal regression. Overall, both methods deliver consistent
results, and seem suitable for extending the CAPM with an investment horizon.
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