Estimating Betas and Stock-Return Correlations From Monthly Data: A Warning Note
AbstractThe empirical finance literature makes extensive use of 'monthly' stock returns, where a monthly return is the change in stock price between one particular day of the calendar month - which we term the reference day - and the corresponding day of the following month. We show that estimates of betas and stock-market correlations are highly sensitive to the choice of reference day and we suggest that studies based on such estimates can be unreliable. We support this claim by carrying out two small-scale empirical studies showing in each case that the results of critical tests are dependent upon the choice of reference day.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 04/557.
Length: 36 pages
Date of creation: Jan 2004
Date of revision:
betas; international correlations; estimation risk;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-08 (All new papers)
- NEP-ETS-2004-02-08 (Econometric Time Series)
- NEP-FIN-2004-02-08 (Finance)
- NEP-FMK-2004-02-08 (Financial Markets)
- NEP-RMG-2004-02-08 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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