Daily Data is Bad for Beta: Opacity and Frequency-Dependent Betas

Thomas Gilbert, Christopher Hrdlicka, Jonathan Kalodimos and Stephan Siegel ()

The Review of Asset Pricing Studies, 2014, vol. 4, issue 1, 78-117

Abstract: A stock’s market exposure, beta, varies across return frequencies. Sorting stocks on the difference between low- and high-frequency betas (Δβ) yields large systematic mispricings relative to the CAPM at high frequencies, but significantly smaller mispricings at low frequencies. We provide a risk-based explanation for this frequency dependence by introducing uncertainty about the effect of systematic news on firm value (opacity) into a frictionless model. We document a robust relationship between the frequency dependence of betas and proxies for opacity. Our findings suggest that opacity poses significant challenges to using betas estimated from high-frequency returns. While the CAPM may be an appropriate asset pricing model at low frequencies, additional factors, e.g., based on opacity, are necessary at high frequencies.

JEL-codes: G11 G12 G13 G14 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:4:y:2014:i:1:p:78-117.

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