Estimating and Adjusting for the Intervalling-Effect Bias in Beta
AbstractThe concept of beta as the measure of systematic risk has been widely accepted in the academic and financial community. Increasingly, betas are being used to estimate the cost of capital for corporations. Despite this, however, biases are generally present in ordinary least squares (OLS) estimates of beta. In particular, empirical estimates of beta are affected by friction in the trading process which delays the adjustment of a security's price to informational change and hence leads to an "intervalling-effect" bias. In this paper, we present and empirically test two procedures for correcting this bias. The first is to estimate the asymptotic value that OLS beta approaches as the differencing interval is lengthened without bound. The second procedure is to infer the value of beta by adjusting OLS beta for cross-sectional differences in the intervalling effect as a function of the depth of the market for a security (as measured by its value of shares outstanding). Our results suggest that a substantial correction is needed to get "true" beta estimates from short differencing interval data.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 29 (1983)
Issue (Month): 1 (January)
beta estimation; intervalling-effect bias; systematic risk;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.