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Robust beta estimation: Some empirical evidence
Author(s) -
Fong Wai Mun
Publication year - 1997
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/s1058-3300(97)90004-5
Subject(s) - kurtosis , skewness , econometrics , beta (programming language) , distribution (mathematics) , stock exchange , economics , generalized beta distribution , student's t distribution , statistics , mathematics , distribution fitting , computer science , probability distribution , autoregressive conditional heteroskedasticity , finance , volatility (finance) , mathematical analysis , programming language
The effect of allowing for skewness and excess kurtosis in estimating market model betas is examined using the Generalized Student‐t (GET) Distribution. The GET Generalized the widely used Student‐t distribution by allowing for skewness as well as leptokurtosis. Using data on monthly returns of twenty‐two stocks listed on the Singapore Stock Exchange, we find that the GET provides a significantly better fit to the data than the normal distribution or the symmetric Student‐t distribution. Based on a small out‐of‐sample experiment, the GET was also found to outperform OLS and Student‐t betas in forecasting ability.