Title: The modelling of stock returns conditionally to the classes of volatility on the French market

Authors: Siwar Ellouz

Addresses: CEREG, University of Paris Dauphine and GOVERNANCE, ESC SFAX, 21 Rue Taher Sfar Sfax, 3000, Tunisia

Abstract: This paper examines the empirical validity of the conditional capital asset pricing model (CAPM) with three betas. Specifically, having modelled the market volatility return like a GARCH (1,1) process and having defined three regimes of volatility (low, neutral and high), we find that most of the betas in volatility classes are meaningful and positive. We also note that the CAPM with three betas perform more in the case of the big size firms that in those of small sizes and that it is interesting to integrate the bullish and bearish character of the stock markets in this model.

Keywords: volatility; conditional CAPM; capital asset pricing; stock returns; bullish markets; bearish markets; modelling; stock markets.

DOI: 10.1504/IJMFA.2009.025055

International Journal of Managerial and Financial Accounting, 2009 Vol.1 No.3, pp.248 - 267

Published online: 11 May 2009 *

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