Beta estimates of shares on the JSE Top 40 in the context of reference-day risk

Christopher Baker, Kanshukan Rajaratnam () and Emlyn James Flint
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Christopher Baker: University of Cape Town
Kanshukan Rajaratnam: University of Cape Town
Emlyn James Flint: University of Pretoria

Environment Systems and Decisions, 2016, vol. 36, issue 2, 126-141

Abstract: Abstract A topic of interest in the finance world is measuring systematic risk. Accurately measuring the systematic risk component—or Beta—of an asset or portfolio is important in many financial applications. In this work, we consider the efficiency of a range of Beta estimation methods commonly used in practice from a reference-day risk perspective. We show that, when using the industry standard data sample of 5 years of monthly returns, the choice of reference-day used to calculate underlying returns has a significant impact on all of the Beta estimation methods considered. Driven by this finding, we propose and test an alternative nonparametric bootstrap approach for calculating Beta estimates which is unaffected by reference-day risk. Our primary goal is to determine a point-estimate of Beta, independent of reference-day.

Keywords: Reference-day risk; Bootstrap; Systematic risk; Beta (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10669-016-9595-4

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