The Memory of Beta

58 Pages Posted: 1 Jan 2020

See all articles by Janis Becker

Janis Becker

Leibniz Universität Hannover

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Philipp Sibbertsen

University of Hannover

Date Written: November 25, 2019

Abstract

Researchers and practitioners employ a variety of time-series processes to forecast betas, using either short-memory models or implicitly imposing infinite memory. We find that both approaches are inadequate: beta factors show consistent long-memory properties. For the vast majority of stocks, we reject both the short-memory and difference-stationary (random walk) alternatives. A pure long-memory model reliably provides superior beta forecasts compared to all alternatives. Finally, we document the relation of firm characteristics with the forecast error differentials that result from inadequately imposing short-memory or random walk instead of long-memory processes.

Keywords: Long memory, beta, persistence, forecasting, predictability

JEL Classification: G12, C58, G11

Suggested Citation

Becker, Janis and Hollstein, Fabian and Prokopczuk, Marcel and Sibbertsen, Philipp, The Memory of Beta (November 25, 2019). Available at SSRN: https://ssrn.com/abstract=3492931 or http://dx.doi.org/10.2139/ssrn.3492931

Janis Becker

Leibniz Universität Hannover ( email )

Schneiderberg 50
Hannover, 30167
Germany

Fabian Hollstein (Contact Author)

Leibniz University Hannover - School of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Philipp Sibbertsen

University of Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

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