Estimating Beta

36 Pages Posted: 25 Jan 2002

See all articles by Haim Shalit

Haim Shalit

Ben-Gurion University of the Negev - Department of Economics

Shlomo Yitzhaki

Hebrew University of Jerusalem - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 15, 2001

Abstract

This paper presents evidence that Ordinary Least Squares estimators of beta coefficients of major firms and portfolios are highly sensitive to observations of extremes in market index returns. This sensitivity is rooted in the inconsistency of the quadratic loss function in financial theory. By introducing considerations of risk aversion into the estimation procedure using alternative estimators derived from Gini measures of variability one can overcome this lack of robustness and improve the reliability of the results.

Keywords: OLS estimators, systematic risk, mean-Gini

JEL Classification: G12

Suggested Citation

Shalit, Haim and Yitzhaki, Shlomo, Estimating Beta (November 15, 2001). Available at SSRN: https://ssrn.com/abstract=297399 or http://dx.doi.org/10.2139/ssrn.297399

Haim Shalit (Contact Author)

Ben-Gurion University of the Negev - Department of Economics ( email )

Department of Economics
Beer-Sheva 84105
Israel
+972-8-6472299 (Phone)
+972-8-6472941 (Fax)

Shlomo Yitzhaki

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 659 2201 (Phone)
+972 2 652 2319 (Fax)

National Bureau of Economic Research (NBER) ( email )

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United States

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