<abstract xmlns="http://www.w3.org/1999/xhtml"><p> This paper presents evidence that Ordinary Least Squares estimators of beta coefficients of major firms and portfolios are highly sensitive to observations of extremes in market index returns. This sensitivity is rooted in the inconsistency of the quadratic loss function in financial theory. By introducing considerations of risk aversion into the estimation procedure using alternative estimators measures of variability we can overcome this lack of robustness and improve the reliability of the results.</p></abstract>

This paper presents evidence that Ordinary Least Squares estimators of beta coefficients of major firms and portfolios are highly sensitive to observations of extremes in market index returns. This sensitivity is rooted in the inconsistency of the quadratic loss function in financial theory. By introducing considerations of risk aversion into the estimation procedure using alternative estimators measures of variability we can overcome this lack of robustness and improve the reliability of the results.

Selected Robust Methods for Camp Model Estimation

University of Economics in Katowice, Faculty of Informatics and Communication Department of Demography and Economic Statistics Bogucicka 14, 40-226 Katowice, Poland

Folia Oeconomica Stetinensia

{"article-title":"Selected Robust Methods for Camp Model Estimation"}

This paper presents evidence that Ordinary Least Squares estimators of beta coefficients of major firms and portfolios are highly sensitive to observations of...

Selected Robust Methods for Camp Model Estimation

Data publikacji: 30 lip 2013

Zakres stron: 58 - 71

DOI: https://doi.org/10.2478/v10031-012-0032-7

This content is open access.