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Dynamic Asset Beta Measurement

20 Pages Posted: 21 Nov 2009 Last revised: 29 Jan 2012

Brandon Chen

Victoria University of Wellington

Jonathan J. Reeves

UNSW Business School, University of New South Wales; Financial Research Network (FIRN)

Date Written: May 31, 2009

Abstract

The recent advent of high-frequency data and advances in financial econometrics allow investors to evaluate the accuracy of different beta (systematic risk) measurements. Benchmarking against the monthly realized beta formed by 30-minute data, we compare the popular Fama-MacBeth betas, the monthly realized betas formed by daily returns and our Hodrick-Prescott filtered betas, with the smoothing parameter, λ, set to 100. We find our filtered betas reduce the measurement error substantially relative to other beta measures. These results enable market participants to measure betas with greater precision and efficiency even with only daily returns in hand.

Keywords: beta measurement, high frequency, realized beta, Hodrick-Prescott filter

JEL Classification: C13, G10

Suggested Citation

Chen, Brandon and Reeves, Jonathan J., Dynamic Asset Beta Measurement (May 31, 2009). Available at SSRN: https://ssrn.com/abstract=1509823 or http://dx.doi.org/10.2139/ssrn.1509823

Brandon Chen (Contact Author)

Victoria University of Wellington ( email )

School of Economics and Finance
PO Box 600
Wellington, 6140
New Zealand

Jonathan J. Reeves

UNSW Business School, University of New South Wales ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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