Time varying beta: Application on İstanbul stock exchange banking sector

Capital Asset Pricing Model (CAPM) is one of the most used models to describe the risk-return relationship in Modern Portfolio Theory. CAPM is a model built on some assumptions. One of these assumptions is that beta has remained stable over time. However, there are serious evidence that beta changes over time. In this study a Multivariate Generalized Autoregressive Conditional Heteroscedasitcity Model (GARCH-BEKK) is employed to observe time varying betas of 12 banks traded on Borsa Istanbul for the period between December 2001 and February 2017 and results show that beta has time varying aspect. Then, in order to be able to include the monthly statistics, monthly average of 182 months data was obtained and the variables that is effective in changing beta over time were tried to be determined by Multiple Linear Regression Analaysis. According to the results, It has been seen that there is a positive relationship between time varying beta and benchmark bond interest rate and VIX Volatility Index. Whereas it has been seen a negative relationship between time varying beta and currency basket.