Estimating Beta When the CAPM Is True
"Estimating Beta When the CAPM is True", The Journal of Performance Measurement, Summer 1998, v2(4). 38-55
18 Pages Posted: 27 Jun 2017 Last revised: 28 Jun 2017
Date Written: June 30, 1998
Perhaps the most frequently used estimator of the Capital Asset Pricing Model beta in finance is the Ordinary Least Squares estimate, obtained by regressing excess security return against excess market return, with an intercept. This paper shows that the Ordinary Least Squares estimator is inappropriate because it ignores the structure imposed by the Capital Asset Pricing Model on the parameters of the multivariate density of security returns.
Keywords: CAPM, beta, beta estimation
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation