An Analysis of the Market Model and Beta Factors Using U.K. Equity Share Data

The Stability of UK Risk Measures and The Problem of Thin Trading

“…Third, the paper presents reliable evidence on the stability of UK betas by using an estimation method designed to avoid thin trading bias. Besides avoiding bias, our evidence, which covers several thousand estimates over a quarter of a century, is far more comprehensive than that of previous UK studies (see, for example, Brealey [8], Cunningham [15], Guy [32], Pogue and Solnik [46], and Theobald [63]). Finally, the paper provides the first published UK evidence on the stability of other risk measures, particularly the standard deviation of returns and the residual standard deviation.…”

“…Frequently, however, information on the timing of transactions is unavailable and cannot be computed. In these instances it is necessary to resort to one of the beta estimation methods which utilize lagged and leading market returns (Dimson [19], Scholes and Williams [53], or Cohen, Hawawini, Maier, Schwartz, and Whitcomb [14]) or to use a more ad hoc procedure for avoiding thin trading bias (such as Dimson [17], Ibbotson [36], Schwert [54], Theobald [63], or Cohen, Hawawini, Maier, Schwartz, and Whitcomb [13]).…”

“…It is also interesting to note that the overall mean beta estimate appears to shift over time, and is less than unity in every period examined (see Table VII). An explanation for the low mean is that smaller UK companies, unlike their US counterparts (see Rosenberg and Marathe [49] and Alexander and Chervany [1]), appear to have lower betas (see Dimson [19], Marsh [43], and Theobald [63]). This implies an unweighted mean beta which is less than the capitalization weighted mean beta of unity.…”

Empirical Irregularities in the Estimation of Beta: The Impact of Alternative Estimation Assumptions and Procedures

“…Vasicek (1973), andBlume (1971 and revealed the mean reversion tendencies of beta and suggested possible adjustment procedures whilst comparisons of beta based on these procedures are found in Klemkosky and Martin (1975) who highlight the large Mean Square Error from forecasting individual security betas, Eubank and Zumwalt (1979) who also examine the impact of using alternative numbers of periods in estimating beta, and Theobald (1980) who provides some results for the UK. Scholes-Williams (1977), Dimson (1979) and Fowler-Rorke (1983) demonstrate problems associated with thin trading in estimating beta and suggest possible corrections, whilst Theobald (1981) derives analytical results for the relationship between stationarity and the estimation period.…”

A Test of the Apt In Pricing Uk Stocks

“…The capital markets of the United Kingdom have attracted ample attention of researchers in the past due to their size and prominence in the world capital markets (e.g., Brealey, 1970;Dryden, 1970;Gray, 1976;Richards, 1979;Dobbins andWitt, 1980 andTheobold, 1980; Dimson and Marsh, 1983;and Levis and Dotsen, 1984). Yet, there exists no published evidence regarding the validity of the APT in pricing UK stocks.…”