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Estimating Beta
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DOI：10.1017/S0022109016000508.png)
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Abstract
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We conduct a comprehensive comparison of market beta estimation techniques. We study the performance of several historical, time-series model, and option-implied estimators for estimating realized market beta. Thereby, we find the hybrid methodology of Buss and Vilkov to consistently outperform all other approaches. In addition, all other approaches, including fully implied and dynamic conditional beta, based on generalized autoregressive conditional heteroskedasticity (GARCH) models, are dominated by a simple beta estimate based on historical (co-)variances and an approach based on the Kalman filter. Our conclusions remain unchanged after performing several robustness checks.
Keywords:
IMPLIED VOLATILITY
INFORMATION-CONTENT
PREDICTIVE POWER
EQUITY OPTIONS
RISK PREMIUMS
STOCK
MODELS
EQUILIBRIUM
MARKETS
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