INDUSTRY BETAS AND COMMODITIES UNCERTAINTIES

Back to Page Authors: Muhammad Abubakr Naeem; Faruk Balli; Anne de Bruin

Keywords: Industry betas, DCC-MIDAS, MIDAS regression, Commodities Uncertainties

Abstract: This study examines the effect of price uncertainty of three globally traded commodities—crude oil, gold, and copper—on the industry betas of United States (US) and European Union (EU) markets. The DCC-MIDAS model is used to estimate industry betas and results are evaluated using multivariate mixed data sampling (MIDAS) regression analysis. The uncertainty of crude oil prices is found to significantly increase the systematic risk for most industries in the US, but it has the opposite effect on industry betas in the EU. The findings also indicate an insignificant relationship of uncertainty in the price of gold with the US and EU industry betas. In addition, the effect of copper price uncertainty is more significant in the US than EU markets, while the effect of copper is similar to oil for most industries. The findings imply that the observed effect of commodity price uncertainty on industry betas depends on the betas’ dynamics or the industry’s degree of dependence on a particular commodity.