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Predicting Betas: Two new methods

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Author Info
Mª Victoria Esteban González () (Facultad de CC. EE. y Empresariales, UPV/EHU)
Fernando Tusell Palmer () (Facultad de CC. EE. y Empresariales, UPV/EHU)

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Abstract

Betas play a central role in modern finance. The estimation of betas from historical data and their extrapolation into the future is of considerable practical interest. We propose two new methods: the first is a direct generalization of the method in Blume (1975), and the second is based on Procrustes rotation in phase space. We compare their performance with various competitors and draw some conclusions.

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Publisher Info
Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 200901.

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Date of creation: 21 Apr 2009
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Handle: RePEc:ehu:biltok:200901

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Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Related research
Keywords: risk prediction; systematic risk; beta coefficients; Procustes rotation;

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting

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  1. Garbade, Kenneth & Rentzler, Joel, 1981. "Testing the Hypothesis of Beta Stationarity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 577-87, October. [Downloadable!] (restricted)
  2. Fabozzi, Frank J. & Francis, Jack Clark, 1978. "Beta as a Random Coefficient," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(01), pages 101-116, March. [Downloadable!]
  3. Blume, Marshall E, 1975. "Betas and Their Regression Tendencies," Journal of Finance, American Finance Association, vol. 30(3), pages 785-95, June. [Downloadable!] (restricted)
  4. Clare, Andrew & Priestley, Richard & Thomas, Stephen, 1997. "Is Beta Dead? The Role of Alternative Estimation Methods," Applied Economics Letters, Taylor and Francis Journals, vol. 4(9), pages 559-62, September. [Downloadable!] (restricted)
  5. Baesel, Jerome B, 1974. "On the Assessment of Risk: Some Further Considerations," Journal of Finance, American Finance Association, vol. 29(5), pages 1491-94, December. [Downloadable!] (restricted)
  6. Gonzalez-Rivera, Gloria, 1997. "The Pricing of Time-Varying Beta," Empirical Economics, Springer, vol. 22(3), pages 345-63.
  7. Bildersee, John S. & Roberts, Gordon S., 1981. "Beta Instability When Interest Rate Levels Change," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(03), pages 375-380, September. [Downloadable!]
  8. Brooks, R.D. & Faff, R.W. & Lee, J.H.H., 1994. "Beta Stability and Portfolio Formation," Papers 94-3, Melbourne - Centre in Finance.
    Other versions:
  9. Brooks, Robert D & Faff, Robert W & Lee, John H H, 1992. "The Form of Time Variation of Systematic Risk: Some Australian Evidence," Applied Financial Economics, Taylor and Francis Journals, vol. 2(4), pages 191-98, December. [Downloadable!] (restricted)
  10. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June. [Downloadable!] (restricted)
  11. Brooks, R D, et al, 1997. "A Further Examination of the Effect of Diversification on the Stability of Portfolio Betas," Applied Financial Economics, Taylor and Francis Journals, vol. 7(1), pages 9-14, February. [Downloadable!] (restricted)
  12. Collins, Daniel W & Ledolter, Johannes & Rayburn, Judy Dawson, 1987. "Some Further Evidence on the Stochastic Properties of Systematic Risk," Journal of Business, University of Chicago Press, vol. 60(3), pages 425-48, July. [Downloadable!] (restricted)
  13. Bos, T & Newbold, P, 1984. "An Empirical Investigation of the Possibility of Stochastic Systematic Risk in the Market Model," Journal of Business, University of Chicago Press, vol. 57(1), pages 35-41, January. [Downloadable!] (restricted)
  14. Blume, Marshall E, 1971. "On the Assessment of Risk," Journal of Finance, American Finance Association, vol. 26(1), pages 1-10, March. [Downloadable!] (restricted)
  15. Klaus Abberger, 2004. "Conditionally parametric fits for CAPM betas," CoFE Discussion Paper 04-04, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
  16. Markus Ebner & Thorsten Neumann, 2005. "Time-Varying Betas of German Stock Returns," Financial Markets and Portfolio Management, Springer, vol. 19(1), pages 29-46, June. [Downloadable!] (restricted)
  17. Brooks, Robert D & Faff, Robert W & Josev, Thomas, 1997. "Beta Stability and Monthly Seasonal Effects: Evidence from the Australian Capital Market," Applied Economics Letters, Taylor and Francis Journals, vol. 4(9), pages 563-66, September. [Downloadable!] (restricted)
  18. Brooks, Robert D & Faff, Robert W, 1997. "A Note on Beta Forecasting," Applied Economics Letters, Taylor and Francis Journals, vol. 4(2), pages 77-78, February. [Downloadable!] (restricted)
  19. Chen, Son-Nan & Lee, Cheng F., 1982. "Bayesian and mixed estimators of time varying betas," Journal of Economics and Business, Elsevier, vol. 34(4), pages 291-301. [Downloadable!] (restricted)
  20. Lee, Cheng F. & Chen, Carl R., 1982. "Beta stability and tendency : An application of a variable mean response regression model," Journal of Economics and Business, Elsevier, vol. 34(3), pages 201-206. [Downloadable!] (restricted)
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