Simply Better Market Betas
30 Pages Posted: 6 May 2019 Last revised: 17 Dec 2020
Date Written: December 13, 2020
A robust and easy-to-implement one-pass beta estimator outperforms all other known estimators of market beta: Justified by the market model itself, daily stock returns are first winsorized at –2 and +4 times the contemporaneous market return. The resulting “slope-winsorized” betas outpredict not only Bloomberg betas (ubiquitous on financial websites), and Vasicek (1973) betas, but also published estimators that require intra-day data, super-computers, or financial statements. Adding simple age decay further improves the estimates.
Keywords: market-beta, robust estimation, winsorization
JEL Classification: G11, C58
Suggested Citation: Suggested Citation