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.


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


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.



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.


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.

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