Simply Better Market Betas

30 Pages Posted: 6 May 2019 Last revised: 17 Dec 2020

See all articles by Ivo Welch

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2020

Abstract

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

Welch, Ivo, Simply Better Market Betas (December 13, 2020). Available at SSRN: https://ssrn.com/abstract=3371240 or http://dx.doi.org/10.2139/ssrn.3371240

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