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THIN TRADING AND THE ESTIMATION OF BETAS: THE EFFICACY OF ALTERNATIVE TECHNIQUES
Author(s) -
Bartholdy Jan,
Riding Allan
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00189.x
Subject(s) - estimator , econometrics , ordinary least squares , estimation , economics , systematic risk , statistics , mathematics , management
Infrequent trading induces biased estimates of the beta risk coefficient. This paper reports on the efficacy of approaches that seek to correct for this bias and documents the extent of thin trading among New Zealand securities. Parameter estimates free of the thin‐trading bias are obtained. These are compared with estimates obtained using ordinary least squares (OLS) applied in the conventional manner to nonsynchronous data, with and without bias‐correcting procedures. OLS beta estimates are found to be less biased, more efficient, and as consistent when compared with Dimson or Scholes‐Williams estimators. Lower beta estimates are associated with lower trading frequencies.