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Beta estimation in New Zealand

Author

Listed:
  • Marshall, Ben R.
  • Nguyen, Nhut H.
  • Visaltanachoti, Nuttawat

Abstract

Beta is an important input in the cost of capital calculations. However, it is not directly observable, so an estimate needs to be made. Beta can be easily estimated using simple regression techniques. However, there is evidence that more complex estimation procedures generate superior beta forecasts in international markets. In New Zealand, several betas out-perform OLS betas in a statistical sense. Shrinkage betas perform best, generating precision improvements of up to 17% over their OLS counterparts.

Suggested Citation

  • Marshall, Ben R. & Nguyen, Nhut H. & Visaltanachoti, Nuttawat, 2021. "Beta estimation in New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:pacfin:v:70:y:2021:i:c:s0927538x21001785
    DOI: 10.1016/j.pacfin.2021.101671
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    References listed on IDEAS

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    More about this item

    Keywords

    Beta; Cost of capital;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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