The sensitivity of beta to the time horizon when log prices follow an Ornstein-Uhlenbeck process

KiHoon Jimmy Hong and Steve Satchell

The European Journal of Finance, 2014, vol. 20, issue 3, 264-290

Abstract: This paper provides a new theoretical approach to investigate the sensitivity of the familiar beta of the capital asset pricing model to the length of the return measurement interval; a phenomenon known as the intervalling effect. By setting the problem in a continuous time setting, and using exact results, we are able to generalize existing results in the literature. We derive an expression for beta as a function of the time horizon h , conditional on current time t . We show that beta is monotonic in h and derive conditions for it to be increasing or decreasing.

Date: 2014
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/1351847X.2012.698992

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