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A note on beta forecasting

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  • Robert Brooks
  • Robert Faff

Abstract

The issue of beta forecasting is explored using Australian stock returns data. A simple market model is fitted to individual stock data over the period 1983 to 1987 and the beta estimated from this sample is used to forecast the market model beta over the period 1988 to 1992. It is found that a simple transformation of the initial period beta produces a forecast error which is remarkably close to the transformation which produces the minimum least squares forecast error. This suggests that the more complex forecasting techniques proposed in the literature may not be worth the additional computational effort.

Suggested Citation

  • Robert Brooks & Robert Faff, 1997. "A note on beta forecasting," Applied Economics Letters, Taylor & Francis Journals, vol. 4(2), pages 77-78.
    • Handle: RePEc:taf:apeclt:v:4:y:1997:i:2:p:77-78
    DOI: 10.1080/758526698
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    Citations

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    Cited by:

    1. Robert D. Brooks & Robert W. Faff & Michael D. McKenzie, 1998. "Time†Varying Beta Risk of Australian Industry Portfolios: A Comparison of Modelling Techniques," Australian Journal of Management, Australian School of Business, vol. 23(1), pages 1-22, June.
    2. R. D. Brooks & R. W. Faff & M. McKenzie, 2002. "Time varying country risk: an assessment of alternative modelling techniques," The European Journal of Finance, Taylor & Francis Journals, vol. 8(3), pages 249-274.
    3. Esteban González, María Victoria & Tusell Palmer, Fernando Jorge, 2009. "Predicting Betas: Two new methods," BILTOKI 1134-8984, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
    4. Gangemi, Michael & Brooks, Robert & Faff, Robert, 1999. "Mean reversion and the forecasting of country betas: a note," Global Finance Journal, Elsevier, vol. 10(2), pages 231-245.
    5. Kai-Wei (Shaun) Siau & Stephen J. Sault & Geoffrey J. Warren & Henk Berkman, 2015. "Are imputation credits capitalised into stock prices?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(1), pages 241-277, March.

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