In search of beta
British Accounting Review
© 2017 Published by Elsevier Ltd.
Reason for embargo
Under embargo until 24 December 2019 in compliance with publisher policy.
Despite its limitations, the CAPM is a popular asset pricing model. However, the estimation of beta in the CAPM is affected by the choice of the returns frequency and firm characteristics. This study undertakes a detailed examination of the evidence for the UK and we find that the differences in beta computed from returns of various frequencies are related to size, liquidity, book-to-market and to some degree, opacity factors. One area where our conclusions might have important implications is in the regulatory use of the CAPM. Our results imply that low frequency beta estimates should, in most cases, be preferred to high frequency beta estimates.
The analysis in this paper results from a project funded by the Economic and Social Research Council (ES/J023914/1), and the authors would like to thank the ESRC for its support. In addition, the authors are grateful to Lucy Beverley (formerly of the UK Competition and Markets Authority and now with the Financial Conduct Authority) and Scott Sandles (Australian Energy Regulator) for their comments and their help in identifying key documents referred to in this paper. We would also like to thank participants at the 2016 BAFA Conference for their comments. Any errors and omissions are, of course, the authors' responsibility.
This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this record.
Available online 23 December 2017