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F. Hollstein, M. Prokopczuk, “Estimating Beta,” (accepted paper series,Journal of Financial and Quantitative Analysis, Forthcoming)

F. Hollstein, M. Prokopczuk, “Estimating Beta,” (accepted paper series,Journal of Financial and Quantitative Analysis, Forthcoming)

Abstract: 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 (2012) to consistently outperform all other approaches. In addition, all other approaches, including fully implied and GARCH-based methods for dynamic conditional beta, are dominated by a simple beta estimate based on historical (co-)variances and a Kalman filter based approach. Our conclusions remain unchanged after performing several robustness checks.