The use of domestic and world market indexes in the estimation of time-varying betas

Michael D. McKenzie, Robert D. Brooks, Robert W. Faff

Research output: Contribution to journalArticleResearchpeer-review

22 Citations (Scopus)


This paper generates time-varying estimates of Australian industry betas relative to an Australian market index and a world market index using the Kalman filter approach. As a means of comparison, these conditional estimated betas are used to forecast each industry's return in-sample. The forecast error metrics suggest that the estimates of conditional risk relative to the domestic market index are preferred to estimates generated using the world market index, irrespective of the industry concerned. While not to suggest time-varying betas estimated relative to a domestic index are universally superior, these results suggest that they are preferable in certain circumstances.

Original languageEnglish
Pages (from-to)91-106
Number of pages16
JournalJournal of Multinational Financial Management
Issue number1
Publication statusPublished - 1 Jan 2000
Externally publishedYes


  • Kalman filter
  • Market index
  • Time-varying beta

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