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Beta as a Random Coefficient

Published online by Cambridge University Press:  06 April 2009

Frank J. Fabozzi  and
Jack Clark Francis
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Extract

After Markowitz [14, p. 100] and Sharpe [19, 20] suggested estimating the beta systematic risk coefficient for market assets, finance professors, stock brokers, investment managers, and others began expending large quantities of resources each year on estimating betas. Unfortunately however, it appears that the ordinary least-squares (OLS) regressions used in nearly every instance may be inappropriate. This paper suggests that many stocks' beta coefficients move randomly through time rather than remain stable as the OLS model presumes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 1 , March 1978 , pp. 101 - 116
Copyright
Copyright © School of Business Administration, University of Washington 1978

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References

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