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The importance of timing in estimating beta

Author

Listed:
  • Roi D. Taussig

    (Ariel University)

  • Dror Tobi

    (Ariel University
    Ariel University)

  • Moti Zwilling

    (Ariel University)

Abstract

The holy grail for scholars and practitioners of finance is to comprehend the behavior of equity returns. This research extends that comprehension by integrating methods from the field of bioinformatics into the capital asset pricing model. We examine 198,499 firm-year observations for stocks traded on the NYSE, the NASDAQ, and the AMEX from July 1963 to June 2014. Whereas the conventional models invoke beta as the measure of variability in equity returns, our model adopts the dynamic programming algorithm of (Needleman and Wunsch in J Mol Biol 48(3):443–53, 1970). It allows the incorporation of sporadic gaps in the daily returns to obtain the best fit between the returns of individual stocks and a broader equity index. In doing so, it demonstrates the importance of timing in estimating beta.

Suggested Citation

  • Roi D. Taussig & Dror Tobi & Moti Zwilling, 2019. "The importance of timing in estimating beta," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(1), pages 61-70, March.
    • Handle: RePEc:spr:eurase:v:9:y:2019:i:1:d:10.1007_s40822-018-0103-7
    DOI: 10.1007/s40822-018-0103-7
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    References listed on IDEAS

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    Cited by:

    1. Xuan Vinh Vo & Thi Tuan Anh Tran, 2021. "Higher-order comoments and asset returns: evidence from emerging equity markets," Annals of Operations Research, Springer, vol. 297(1), pages 323-340, February.

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    More about this item

    Keywords

    Asset pricing; Bioinformatics alignment; Pattern matching; Stock returns;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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