Applications of state space models in finance

108 6 Time-varying market beta risk of pan-European sectors
Table 6.7: Parameter estimates for Markov switching models.
sectors.
This table reports the estimated parameters for the MS/MSM models for the eighteen DJ Stoxx
Sector Model α1; α2(×10 4 ) β1; β2 σ 2 i1; σ 2 i2(×10 2 ) γ11 γ22 µ1; µ2(×10 3 ) σ 2 01; σ 2 02(×10 2 )
Automobiles MS −13.4; −4.87 1.26; 1.03 1.51; 2.89 0.993 0.980
MSM −3.05; −35.5 1.22; 1.07 1.47; 2.92 0.976 0.926 2.40; −2.97 1.56; 3.70
Banks MS 1.57; 8.70 1.01; 1.11 0.70; 1.77 0.988 0.970
MSM 2.02; 1.07 0.97; 1.10 0.67; 1.75 0.962 0.904 2.30; −2.02 1.58; 3.36
Basics MS −3.26; 8.62 1.05; 0.84 1.04; 2.64 0.998 0.998
MSM −3.90; 9.56 1.02; 0.82 1.08; 2.95 0.972 0.917 −2.58; −2.28 1.61; 3.31
Chemicals MS 1.70; −4.37 1.00; 0.87 0.93; 2.05 0.998 0.996
MSM 1.04; −12.6 0.98; 0.85 1.05; 2.38 0.978 0.901 2.65; −4.16 1.63; 3.70
Construction MS −7.04; 0.22 1.14; 0.77 0.92; 1.75 0.997 0.993
MSM −4.38; −4.11 1.07; 0.79 0.94; 1.89 0.982 0.959 2.55; −3.26 1.55; 3.42
Financials MS −0.61; −3.31 0.91; 1.08 0.84; 1.82 0.997 0.990
MSM −0.05; 3.33 0.91; 1.05 0.81; 1.89 0.969 0.883 2.52; −3.25 1.60; 3.62
Food MS −0.95; 1.96 0.91; 0.49 0.76; 2.23 0.993 0.984
MSM −1.48; −1.47 0.89; 0.52 0.78; 2.34 0.985 0.928 2.59; −2.51 1.60; 3.33
Healthcare MS 14.5; −0.88 0.91; 0.68 1.13; 2.39 0.981 0.971
MSM 10.0; 2.72 0.90; 0.73 1.16; 2.40 0.969 0.952 2.62; −1.31 1.51; 3.11
Industrials MS −0.59; −7.62 1.02; 0.96 0.62; 1.45 0.998 0.996
MSM 1.52; −1.41 1.00; 0.97 0.64; 1.57 0.975 0.951 2.24; −1.45 1.59; 3.38
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