Beta Estimation in New Zealand
31 Pages Posted: 15 Sep 2021 Last revised: 16 Sep 2021
Date Written: July 11, 2021
Beta is an important input in the cost of capital calculations. However, it is not directly observable, so an estimate needs to be made. Beta can be easily estimated using simple regression techniques. However, there is evidence that more complex estimation procedures generate superior beta forecasts in international markets. In New Zealand, several betas out-perform OLS betas in a statistical sense. Shrinkage betas perform best generating precision improvements of up to 17% over their OLS counterparts.
Keywords: Beta, Cost of Capital
JEL Classification: G14, G41
Suggested Citation: Suggested Citation