Investment cycle on the behavior of systematic risk: A wavelet analysis

Investors get risks while they are managing their investments. Systematic risk is a major risk for all investors and it is measured with the financial beta coefficient. In the finance literature, there are many studies against the calculation of the financial beta by the Market Model. Blume (1975) emphasizes in his research that the financial beta coefficient is differing based on investment horizon and it needs to be corrected. In this study, the Multi-Scaling technique based upon Wavelet Analysis is used. The aim of the study to investigate the systematic risk dynamics between the market return and the stock return in the different investment horizons for 111 stocks traded continuously in the Borsa Istanbul between 1997 and 2017. The results show that the estimated financial beta coefficients on six different scales are close to 1 and also the explanatory power of market models on six different scales are increasing with the expansion of the investment horizon. As a conclusion, the findings show the investment cycle period of 128 days according to the analysis period. Also, these results are in parallel with the findings of Blume(1975) in terms of a different technique