Impacts of Time Aggregation on Beta Value and R2 Estimations Under Additive and Multiplicative Assumptions: Theoretical Results and Empirical Evidence

Yuanyuan Xiao, Yushan Tang and Cheng Few Lee

Chapter 114 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 3947-3984 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Data for big and small market-value firms are used to evaluate the effects of temporal aggregation on beta estimates, t-values, and R2 estimates. In addition to our analysis of the standard market model within addictive rates of return framework, the standard model under assumption of multiplicative rates of return is also discussed. Furthermore, dynamic is estimated in this study to evaluate differences in the short-term and long-term dynamic relationships between the market and each type of firm. It is found that temporal aggregation has important effects on both the specification of a market model and the stability of beta and R2 estimates.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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