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An examination of the cross-sectional relationship of beta and return in international stock returns: evidence from emerging and developed markets
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This paper will follow Pettengill et al.’s (1995) approach to examine the unconditional
and conditional relationship between beta and returns from January 1995 to May 2017 in a well
globally diversified sample of 22 emerging markets and 23 developed markets. Additionally,
Pettengill et al.’s (1995) methodology is adjusted to take into account 1-year time-varying beta
values to supplement and check the robustness of the initial results. The empirical results for
the full sample as well as both sub-samples indicate that there is no significant unconditional
relationship between beta and returns, however, when differentiating between up- and downmarkets
a significant conditional relationship is found. This paper adds to the existing literature
by examining and comparing a large sample of both developed and emerging markets, as well
as, confirming the results according to Pettengill et al.’s methodology with time-varying betas.
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Risk-return relationship Unconditional Conditional Time-varying betas