Simpler Better Market Betas

62 Pages Posted: 2 Aug 2019 Last revised: 1 May 2022

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: July 2019


This paper proposes a robust one-pass estimator that is easy to code: Justified by the market-model itself and using a prior that market-betas should not be less than –2 and more than +4, 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. The resulting “slope-winsorized” estimates outperform (all) other known estimators in predicting the future OLS market-beta (on R2 metrics). Adding reasonable age decay, suggesting a half-life of about 3 to 5 months, to observations entering the market-model further improves it. The estimates outpredict the Vasicek estimates by about half as much as the Vasicek estimates outpredict the OLS estimates.

Suggested Citation

Welch, Ivo, Simpler Better Market Betas (July 2019). NBER Working Paper No. w26105, Available at SSRN:

Ivo Welch (Contact Author)

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