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Robust beta estimation: Some empirical evidence

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  • Wai Mun Fong

Abstract

The effect of allowing for skewness and excess kurtosis in estimating market model betas is examined using the Generalized Student‐t (GET) Distribution. The GET Generalized the widely used Student‐t distribution by allowing for skewness as well as leptokurtosis. Using data on monthly returns of twenty‐two stocks listed on the Singapore Stock Exchange, we find that the GET provides a significantly better fit to the data than the normal distribution or the symmetric Student‐t distribution. Based on a small out‐of‐sample experiment, the GET was also found to outperform OLS and Student‐t betas in forecasting ability.

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  • Wai Mun Fong, 1997. "Robust beta estimation: Some empirical evidence," Review of Financial Economics, John Wiley & Sons, vol. 6(2), pages 167-186.
    • Handle: RePEc:wly:revfec:v:6:y:1997:i:2:p:167-186
    DOI: 10.1016/S1058-3300(97)90004-5
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