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Alternative beta risk estimators in cases of extreme thin trading: Canadian evidence

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  • Robert Brooks
  • Robert Faff
  • Tim Fry
  • E. Bissoondoyal-Bheenick

Abstract

In this paper, an alternative method of estimating the systematic risk for Canadian stocks is presented and empirically investigated. The method proposed is applied to a set of data impacted by censoring - the presence of zero returns, which occurs in extreme cases of thin trading. The approach used is the sample selectivity model, which is a two-step procedure: with a selectivity component and a regression component. In addition, this study compares the new beta estimate to the standard OLS beta and the Dimson Beta. The results indicate that the selectivity-corrected beta does correct the downward bias of the OLS estimates and possesses desirable statistical properties.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 18 ()
Pages: 1251-1258

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:18:p:1251-1258

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Cited by:
  1. José L. B. Fernandes & Augusto Hasman & Juan Ignacio Peña, 2006. "Risk Premium: Insights Over The Threshold," Working Papers Series, Central Bank of Brazil, Research Department 126, Central Bank of Brazil, Research Department.
  2. Iqbal, Javed & Brooks, Robert, 2007. "Alternative beta risk estimators and asset pricing tests in emerging markets: The case of Pakistan," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 17(1), pages 75-93, February.
  3. Robert E. Houmes & John B. MacArthur & Harriet Stranahan, 2012. "The operating leverage impact on systematic risk within a context of choice: An analysis of the US trucking industry," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 38(12), pages 1184-1202.
  4. Khoury, Nabil & Perrakis, Stylianos & Savor, Marko, 2011. "Competition, interlisting and market structure in options trading," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 104-117, January.

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