IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Estimating and Adjusting for the Intervalling-Effect Bias in Beta

  • Kalman J. Cohen

    (Duke University)

  • Gabriel A. Hawawini

    (INSEAD, Fontainebleau, France)

  • Steven F. Maier

    (Duke University)

  • Robert A. Schwartz

    (New York University)

  • David K. Whitcomb

    (Rutgers University)

The 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.

If 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.

File URL:
Download Restriction: no

Article provided by INFORMS in its journal Management Science.

Volume (Year): 29 (1983)
Issue (Month): 1 (January)
Pages: 135-148

in new window

Handle: RePEc:inm:ormnsc:v:29:y:1983:i:1:p:135-148
Contact details of provider: Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
Phone: +1-443-757-3500
Fax: 443-757-3515
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:29:y:1983:i:1:p:135-148. See general 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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.