Beta estimates of shares on the JSE Top 40 in the context of reference-day risk

Abstract

A topic of interest in the finance world is measuring systematic risk. Accurately measuring the systematic risk component - or Beta - of an asset or portfolio is important in many financial applications. In this work, we consider the effciency of a range of Beta estimation methods commonly used in practice from a reference-day risk perspective. We show that, when using the industry standard data sample of fi ve years of monthly returns, the choice of reference- day used to calculate underlying returns has a signifi cant impact on all of the Beta estimation methods considered. Driven by this finding, we propose and test an alternative non-parametric bootstrap approach for calculating Beta estimates which is unaffected by reference-day risk. Our primary goal is to determine a point-estimate of Beta, independent of reference-day. Keywords: reference-day risk, bootstrap, systematic risk, Beta.