Simpler Better Market Betas / Ivo Welch.

Format:

Book

Author/Creator:

Welch, Ivo.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26105.

NBER working paper series no. w26105

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

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.

Notes:

Print version record

July 2019.