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On the Estimation and Stability of Beta

Published online by Cambridge University Press:  06 April 2009

Gordon J. Alexander  and
Norman L. Chervany
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Extract

Beta coefficients were initially defined by Sharpe [11] as the slope term in the simple linear regression function where the rate of return on a market index was the independent variable and a security's rate of return was the dependent variable. As indicated by Brenner and Smidt [4], accurate estimation of beta coefficients is important for at least two reasons. First, they are important for understanding risk-return relationships in capital market theory. Second, they are important for use in making investment decisions. Some confusion has appeared, however, in recent research regarding both the optimal estimation interval and the intertemporal stability of beta coefficients. The purpose of this paper is to examine this confusion and present new evidence on the estimation and stability of beta.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 1 , March 1980 , pp. 123 - 137
Copyright
Copyright © School of Business Administration, University of Washington 1980

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References

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