Simpler Better Market Betas

46 Pages Posted: 6 May 2019 Last revised: 19 May 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: May 18, 2020


This paper proposes a robust one-pass market-beta estimator that is easy to implement: Justified by the market-model itself and using a prior that market- betas should not be too extreme, the market-model is run on daily stock rates of return that have first been winsorized at –2 and +4 times the contemporaneous market rate of return. Adding reasonable age decay (suggesting a half-life of about 3 to 5 months) in the market-model further improves the beta estimates. The resulting “slope-winsorized” (aged) beta estimators seem to outperform all other prominent estimators in predicting the future OLS market-beta, including not only the Vasicek (1973) and Dimson (1979) estimators (and even for the most illiquid stocks), but also estimators that require intra-day data, super- computer based intensive calculations, and financial statement information

Keywords: market-beta, robust estimation, winsorization

JEL Classification: G11, C58

Suggested Citation

Welch, Ivo, Simpler Better Market Betas (May 18, 2020). Available at SSRN: or

Ivo Welch (Contact Author)

University of California, Los Angeles (UCLA) ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-2508 (Phone)


National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics