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Impacts of Time Aggregation on Beta Value and R2 Estimations Under Additive and Multiplicative Assumptions: Theoretical Results and Empirical Evidence

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

Author

Listed:
  • Yuanyuan Xiao
  • Yushan Tang
  • Cheng Few Lee

Abstract

Data for big and small market-value firms are used to evaluate the effects of temporal aggregation on beta estimates, t-values, and R2 estimates. In addition to our analysis of the standard market model within addictive rates of return framework, the standard model under assumption of multiplicative rates of return is also discussed. Furthermore, dynamic is estimated in this study to evaluate differences in the short-term and long-term dynamic relationships between the market and each type of firm. It is found that temporal aggregation has important effects on both the specification of a market model and the stability of beta and R2 estimates.

Suggested Citation

  • Yuanyuan Xiao & Yushan Tang & Cheng Few Lee, 2020. "Impacts of Time Aggregation on Beta Value and R2 Estimations Under Additive and Multiplicative Assumptions: Theoretical Results and Empirical Evidence," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 114, pages 3947-3984, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0114
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    More about this item

    Keywords

    Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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