Time-Varying Beta: BP versus Exxon

In a recent presentation I had a plot (see below) of a Kalman filtered estimate of BP's time-varying beta coefficient (from a CAPM type market model).  The plot clearly shows the effect of the 2010 Gulf oil spill on BP's beta --  it jumps up above 2.5.  We also see BP's alpha drop below zero.

bp_beta

Such a large effect on BP's beta coefficient is understandable given what its stock price was doing at the time.

bp_price

This prompted some in the audience to wonder how large the effect was on Exxon's beta coefficient around the time of the 1989 Valdez spill.  Kalman filtered estimates of Exxon's alpha and beta around the time are below.

xom_CAPM

 

As you can see, there is surprisingly little effect on Exxon's beta.  To try and explain why I charted the stock price over the period (below) and found there was little effect on Exxon's stock.  The only decline of note in Exxon's stock was due to the 1987 crash.

exxon_price

This explains why Exxon's beta coefficient was unaffected by the spill.  However, I am not sure why there was such a large effect on BP's stock price, and no measurable effect on Exxon's.  I may take a look into it, and update this post later.

Email this to someoneShare on RedditTweet about this on Twitter

Leave a Reply

Your email address will not be published. Required fields are marked *