Beta estimation in the European network regulation context: what matters, what doesn’t, and what is indispensable

Abstract

Most studies on beta estimation look at the whole universe of stocks. We focus on a small subset that consists of stocks of companies which are subject to European network regulation. This allows us to examine beta time series of individual stocks and small peer groups in great detail. Our most important conclusions are: (1) Sudden beta increases or decreases occur that often last only short periods of time and may therefore cause a significant misestimation of the future beta. (2) Three- and especially five-year betas are much more stable than one-year betas. (3) The choice between purely local, European or global betas may matter considerably. (4) Weekly or daily betas seem to be better than monthly ones. (5) Vasicek and Blume adjustments towards one lead to beta predictions that are too high.

The Gibbons, Ross, and Shanken Test for Portfolio Efficiency: A Note Based on Its Trigonometric Properties

“…Jurdi [45] and Agrrawal et al [46] note that investors rely on the ex-post performance of portfolios to assess the economic utility of their asset allocation and guide the portfolio rebalancing decision. Bazhutov et al [47] further note that no market portfolio is clearly defined in CAPM testing. The coordinates of the EW test portfolio (P) and the M portfolio are (8, 4.67) and (12, 5.05), respectively, with the X-coordinate representing return and the Y-coordinate measuring the standard deviation on the portfolio.…”