Estimating Betas and Stock-Return Correlations From Monthly Data: A Warning Note

Daniella Acker and Nigel W. Duck ()

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: The empirical finance literature makes extensive use of 'monthly' stock returns, where a monthly return is the change in stock price between one particular day of the calendar month - which we term the reference day - and the corresponding day of the following month. We show that estimates of betas and stock-market correlations are highly sensitive to the choice of reference day and we suggest that studies based on such estimates can be unreliable. We support this claim by carrying out two small-scale empirical studies showing in each case that the results of critical tests are dependent upon the choice of reference day.

Keywords: betas; international correlations; estimation risk (search for similar items in EconPapers)
JEL-codes: G1 G10 G14 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2004-01
New Economics Papers: this item is included in nep-ets, nep-fin, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:04/557

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