Estimating Beta

78 Pages Posted: 15 Dec 2014 Last revised: 5 Jan 2017

See all articles by Fabian Hollstein

Fabian Hollstein

Saarland University

Marcel Prokopczuk

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: December 1, 2014

Abstract

We conduct a comprehensive comparison of market beta estimation techniques. We study the performance of several historical, time-series model, and option implied estimators for estimating realized market beta. Thereby, we find the hybrid methodology of Buss and Vilkov (2012) to consistently outperform all other approaches. In addition, all other approaches, including fully implied and GARCH-based methods for dynamic conditional beta, are dominated by a simple beta estimate based on historical (co-)variances and a Kalman filter based approach. Our conclusions remain unchanged after performing several robustness checks.

Keywords: Beta estimation, Implied beta

JEL Classification: G11, G12, G14, G17

Suggested Citation

Hollstein, Fabian and Prokopczuk, Marcel and Prokopczuk, Marcel, Estimating Beta (December 1, 2014). Journal of Financial and Quantitative Analysis (JFQA), Volume 51, Issue 4 (2016), Available at SSRN: https://ssrn.com/abstract=2538365

Fabian Hollstein (Contact Author)

Saarland University ( email )

Campus
Saarbrucken, Saarland D-66123
Germany

Marcel Prokopczuk

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

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