A Full-information Approach for Estimating Divisional Betas

Michael C. Ehrhardt and Yatin N. Bhagwat

Financial Management, 1991, vol. 20, issue 2

Abstract: A new approach for estimating divisional betas is developed in this study. The approach is based on a sound theoretical foundation; utilizes all available information, yet still has parsimonious data requirements; can be implemented with simple statistical tools; and provides unambiguously interpretable results. The proposed methodology is applied to a large sample of stocks. The results indicate that the proposed methodology can more accurately estimate divisional betas than other approaches previously advocated in the finance literature.

Date: 1991
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