Beta estimates of shares on the JSE Top 40 in the context of reference-day risk |
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Authors: | Christopher Baker Kanshukan Rajaratnam Emlyn James Flint |
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Institution: | 1.Section of Actuarial Science,University of Cape Town,Rondebosch,South Africa;2.Department of Finance and Tax, and the African Collaboration for Quantitative Finance and Risk Research,University of Cape Town,Rondebosch,South Africa;3.Peregrine Securities, Claremont, South Africa and Department of Mathematics and Applied Mathematics,University of Pretoria,Hatfield,South Africa |
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Abstract: | A topic of interest in the finance world is measuring systematic risk. Accurately measuring the systematic risk component—or Beta—of an asset or portfolio is important in many financial applications. In this work, we consider the efficiency of a range of Beta estimation methods commonly used in practice from a reference-day risk perspective. We show that, when using the industry standard data sample of 5 years of monthly returns, the choice of reference-day used to calculate underlying returns has a significant impact on all of the Beta estimation methods considered. Driven by this finding, we propose and test an alternative nonparametric bootstrap approach for calculating Beta estimates which is unaffected by reference-day risk. Our primary goal is to determine a point-estimate of Beta, independent of reference-day. |
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