Hostname: page-component-586b7cd67f-2brh9 Total loading time: 0 Render date: 2024-11-22T16:49:15.575Z Has data issue: false hasContentIssue false
  • English
  • Français

Beta as a Random Coefficient

Published online by Cambridge University Press:  06 April 2009

Frank J. Fabozzi  and
Jack Clark Francis
Get access Rights & Permissions [Opens in a new window]

Extract

After Markowitz [14, p. 100] and Sharpe [19, 20] suggested estimating the beta systematic risk coefficient for market assets, finance professors, stock brokers, investment managers, and others began expending large quantities of resources each year on estimating betas. Unfortunately however, it appears that the ordinary least-squares (OLS) regressions used in nearly every instance may be inappropriate. This paper suggests that many stocks' beta coefficients move randomly through time rather than remain stable as the OLS model presumes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 1 , March 1978 , pp. 101 - 116
Copyright
Copyright © School of Business Administration, University of Washington 1978

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Blume, M. E. “On the Assessment of Risk.” Journal of Finance (03 1974), pp. 1–10.Google Scholar
[2]Cooley, T., and Prescott, E.. “Tests of an Adaptive Regression Model.” The Review of Economics and Statistics, Vol. 55 (05 1973), pp. 248–256.CrossRefGoogle Scholar
[3]Elton, E. J., and Gruber, M. J.. “Portfolio Theory When Investment Relatives Are Lognormally Distributed.” Journal of Finance (09 1974), pp. 1265–1272.CrossRefGoogle Scholar
[4]Fabozzi, F. J., and Francis, J. C.. “Stability Tests for Alphas and Betas over Bull and Bear Market Conditions.” Journal of Finance (09 1977).CrossRefGoogle Scholar
[5]Fabozzi, F. J., and Francis, J. C.. “The Effects of Changing Macroeconomic Conditions on Alphas, Betas, and the Single-Index Market Model.” Unpublished manuscript, 1977.Google Scholar
[6]Fabozzi, F. J., and Francis, J. C.. “Some Evidence of Heteroscedasticity in the Single-Index Market Model.” Unpublished manuscript, 1977.Google Scholar
[7]Fabozzi, F. J., and Francis, J. C.. “Industry Effects and the Determinants of Beta.” Unpublished manuscript, 1977.Google Scholar
[8]Francis, J. C. “Analysis of Equity Returns: A Survey with Extensions.” Journal of Economics and Business (Spring/Summer 1977).Google Scholar
[9]Francis, J. C., and Fabozzi, F. J.. “The Stability of Mutual Fund Systematic Risk Statistics.” Unpublished manuscript, 1977.Google Scholar
[10]Goldfeld, S. M., and Quandt, R. E.. “A Market Model for Switching Regressions.” Journal of Econometrics, Vol. 1, pp. 3–15.CrossRefGoogle Scholar
[11]Hildreth, C., and Houck, J. P.. “Some Estimators for a Linear Model with Random Coefficients.” Journal of American Statistical Association, Vol. 63 (06 1968), p. 584.Google Scholar
[12]Jacob, Nancy. “The Measurement of Systematic Risk for Securities and Portfolios: Some Empirical Results.” Journal of Financial and Quantitative Analysis (03 1971), pp. 815–834.CrossRefGoogle Scholar
[13]Klemkosky, R. C., and Martin, J. D.. “The Adjustment of Beta Factors.” Journal of Finance (09 1975), pp. 1123–1128.CrossRefGoogle Scholar
[14]Markowitz, Harry. Portfolio Selection. New York: J. Wiley and Sons (1959).Google Scholar
[15]Roll, Richard. “A Critique of the Asset Pricing Theory's Tests; Part I: On Past and Potential Testability of the Theory,” Journal of Financial Economics, Vol. 4, No. 2 (03 1977), pp. 129–176.CrossRefGoogle Scholar
[16]Rosenberg, B. “A Survey of Stochastic Regression Parameters.” Annals of Economic and Social Measurement, Vol. 2, No. 4 (1973), pp. 381–397.Google Scholar
[17]Rosenberg, B., and Guy, J.. “Beta and Investment Fundamentals.” Financial Analysts Journal (05–06 1976).Google Scholar
[18]Rosenberg, B., and Marathe, V.. “Common Factors in Security Returns: Microeconomic Determinants and Microeconomic Correlates.” Working Paper No. 44, Research Program in Finance at University of California at Berkeley (05 1976).Google Scholar
[19]Sharpe, W. F. “A Simplified Model for Portfolio Analysis.” Management Science (01 1963).CrossRefGoogle Scholar
[20]Sharpe, W. F. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance (09 1964), pp. 425–442.Google Scholar
[21]Swamy, P. A. V. B.Statistical Inference in Random Coefficient Regression Models. Berlin: Springer-Verlag (1971).CrossRefGoogle Scholar
[22]Theil, H.Principles of Econometrics. New York: John Wiley and Sons, Inc. (1971).Google Scholar