Close window

 

HISTORICAL, IMPLIED AND REVERSE SECTOR RISKS
IN THE EUROZONE

Markus Glawischnig

University of Graz, Austria

 



ABSTRACT

In this paper we intend to provide a comprehensive survey of the sector risks in the Eurozone. Besides volatilities, correlations and covariances, the focus lies on the betas of the 18 sectors according to the Industry Classification Benchmark (ICB). The calculations of the betas are enforced with three different approaches: one historical, one reverse and one implicit. It turns out that the distinct methods can lead to substantially different estimates of betas of the considered Eurozone sectors. The question to be raised is which concept of beta estimation delivers correct as well as reliable estimates of systematic sector risks. The empirical evidence shows that the sector betas are far from stable in time and it is conclusive that there are not simply estimation errors but that there are economic reasons for time-varying betas.

Key words: Volatility, Beta, Implied volatility, Sector risk

JEL Codes: G14, G15