Alternative beta risk estimators in cases of extreme thin trading: Canadian evidence

Robert D. Brooks, Robert William Faff, Tim R.L. Fry and Bissoondoyal-Bheenick, E.

Applied Financial Economics, 2005, vol. 15, issue 18, pages 1251-1258

Abstract: In this paper, an alternative method of estimating the systematic risk for Canadian stocks is presented and empirically investigated. The method proposed is applied to a set of data impacted by censoring -- the presence of zero returns, which occurs in extreme cases of thin trading. The approach used is the sample selectivity model , which is a two-step procedure: with a selectivity component and a regression component. In addition, this study compares the new beta estimate to the standard OLS beta and the Dimson Beta. The results indicate that the selectivity-corrected beta does correct the downward bias of the OLS estimates and possesses desirable statistical properties.

Date: 2005
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