Estimating Beta
Posted: 24 Feb 2002
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Abstract
This paper presents evidence that Ordinary Least Squares estimators of beta coefficients of major firms and portfolios are highly sensitive to observations of extremes in market index returns. This sensitivity is rooted in the inconsistency of the quadratic loss function in financial theory. By introducing considerations of risk aversion into the estimation procedure using alternative estimators derived from Gini measures of variability one can overcome this lack of robustness and improve the reliability of the results.
Keywords: OLS estimators, systematic risk, mean-Gini
JEL Classification: G12
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