Abstract :
Beta is the most common and widely accepted measure of investment risk and volatility in modern portfolio theory. The traditional CAPM developed by the Sharpe, Lintner and Mossin assumes that beta, which is the measurement of market risk, is symmetric over bull and bear markets. This is based on the assumption that the utility function of an investor is quadratic and security returns are normally distributed. The empirical evidence in the asset pricing literature has really interrogated both the normality and symmetry of the stock returns. The concern with the stock beta is the assumption of symmetry, that it gives equal weightage to upside and downside variance and fails to differentiate the downside risk (risk of loss) from upside risk (gain).This raises the question, whether beta is symmetric over bull and bear markets. The main objective of this study is to assess whether beta is symmetric over bull and bear market in the twelve prominent sectors of the Indian Economy. These sectors are Auto, Banking, Fast Moving Consumer Goods (FMCG), Consumer Durables, Capital Goods, Oil & Gas, Information Technology (IT), Telecom, Realty, HealthCare, Metals and Power.The results of the study show that beta is symmetric in case of relatively aggressive business to consumer sectors such as Auto, Consumer Durables and Telecom. In case of mostly defensive business to consumer sectors such as FMCG, IT and Health-Care the beta coefficients over bear market has come out to be more than the beta coefficient over the bull market. Finally, in case of aggressive and mostly business to business or business to service sectors such as Banking, Capital Goods, Metal, Oil and Gas, Power and Realty sectors the beta coefficient over the bear market has come out to be less than the beta coefficient over the bull market.
Keyword :
Beta Coefficient, Capital Asset Pricing Model (CAPM), Market Risk.