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Empirical Estimates of Beta When Investors Face Estimation Risk

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  • Clarkson, Peter M
  • Thompson, Rex
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    Abstract

    The authors examine empirical implications of models of differential information that formalize the following intuition: securities for which there is relatively little information are perceived as relatively more risky because of the greater uncertainty surrounding the exact parameters of their return distributions. The implication that beta risk for low information firms should decline as information increases is confirmed with several data sets. The authors find such a decline over the first several periods subsequent to initial public offerings and initial listings. There is also an abrupt risk decline at the first annual earnings announcement. Copyright 1990 by American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 45 (1990)
    Issue (Month): 2 (June)
    Pages: 431-53

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    Handle: RePEc:bla:jfinan:v:45:y:1990:i:2:p:431-53

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    Cited by:
    1. Lam, Swee-Sum & Yap, Winnie, 1998. "Pricing System and the Initial Public Offerings Market: A Case of Singapore," International Review of Economics & Finance, Elsevier, vol. 7(3), pages 297-313.
    2. Gauri Ghai & Maria De Boyrie & Shahid Hamid & Arun Prakash, 2001. "Estimation of global systematic risk for securities listed in multiple markets," The European Journal of Finance, Taylor & Francis Journals, vol. 7(2), pages 117-130.
    3. L. C. Hunter & Elizabeth Webster & Anne Wyatt, 2009. "Identifying Corporate Expenditures on Intangibles Using GAAP," Melbourne Institute Working Paper Series wp2009n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. Lowry, Michelle & Schwert, G. William, 2004. "Is the IPO pricing process efficient?," Journal of Financial Economics, Elsevier, vol. 71(1), pages 3-26, January.
    5. Seguin, P. J. & Smoller, M. M., 1997. "Share price and mortality: An empirical evaluation of newly listed Nasdaq stocks," Journal of Financial Economics, Elsevier, vol. 45(3), pages 333-363, September.
    6. Michelle Lowry & G. William Schwert, 2001. "Biases in the IPO Pricing Process," NBER Working Papers 8586, National Bureau of Economic Research, Inc.
    7. Cloninger, Dale O. & Waller, Edward R., 2000. "Corporate fraud, systematic risk, and shareholder enrichment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 29(2), pages 189-201.
    8. Josef Anton Schuster, 2003. "The cross-section of European IPO returns," LSE Research Online Documents on Economics 24859, London School of Economics and Political Science, LSE Library.
    9. Clarkson, Peter M. & Satterly, Amanda, 1997. "Australian evidence on the pricing of estimation risk," Pacific-Basin Finance Journal, Elsevier, vol. 5(3), pages 281-299, July.
    10. Josef Anton Schuster, 2003. "IPOs: insights from seven European countries," LSE Research Online Documents on Economics 24860, London School of Economics and Political Science, LSE Library.
    11. Jonathan Lewellen & Jay Shanken, 2000. "Estimation Risk, Market Efficiency, and the Predictability of Returns," NBER Working Papers 7699, National Bureau of Economic Research, Inc.
    12. Christian Leuz & Catherine Schrand, 2009. "Disclosure and the Cost of Capital: Evidence from Firms’ Responses to the Enron Shock," NBER Working Papers 14897, National Bureau of Economic Research, Inc.
    13. Eberhart, Allan C., 2001. "Comparable firms and the precision of equity valuations," Journal of Banking & Finance, Elsevier, vol. 25(7), pages 1367-1400, July.
    14. Lam, Swee-Sum & Du, Jing, 2004. "Information asymmetry and estimation risk: Preliminary evidence from Chinese equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 12(3), pages 311-331, June.
    15. Robert H. Keeley & Sanjeev Punjabi & Lassaad Turki, 1996. "Valuation of Early-Stage Ventures: Option Valuation Models vs. Traditional Approaches," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 5(2), pages 115-38 , Summer.
    16. Chan, Kam C. & Seow, Gim S., 1996. "The association between stock returns and foreign GAAP earnings versus earnings adjusted to U.S. GAAP," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 139-158, February.
    17. McConnell, John J. & Dybevik, Heidi J. & Haushalter, David & Lie, Erik, 1996. "A survey of evidence on domestic and international stock exchange listings with implications for markets and managers," Pacific-Basin Finance Journal, Elsevier, vol. 4(4), pages 347-376, December.

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