Time-Stratified Estimates of Portfolio Betas and Their Effect on the Capital Asset Pricing Model
22 Pages Posted: 19 May 2006
Date Written: May, 1976
This paper shows that large efficiency gains in estimating portfolio betas can be achieved by using time-stratified estimates which explicitly incorporate seasonality in stock returns. Several types of estimates are examined: combined, separate, two strata and twelve strata. Not only do these estimates greatly reduce standard errors, but also time-stratified beta estimates raise the intercept and lower the slope in estimates of the capital market line.
Keywords: seasonality, beta estimation, capm, stratified samples
JEL Classification: G12
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