Peer Group Beta Reliability under Thin Trading Conditions: Results from a Simulated Environment in the Standard, Mean-Reversion and, Bayesian Framework

Publikation: ArbeitspapierWorking paper

Abstract

Finance literature has proposed numerous techniques in order to eradicate the effects of thin trading, ranging from (il-)liquidity indicators indicating distortions in beta estimates to beta correction procedures directly correcting them in the traditional market model. This study exam-ines the superiority of comprehensive sets of 16 popular (il-)liquidity indicators and 10 popular beta correction procedures among themselves as well as against each other according to bias (effi-ciency) and accuracy (predictive ability) in the standard framework. Furthermore, the analysis is duplicated for the mean-reversion and the Bayesian framework, thus relaxing the assumption of beta stationarity. The results indicate (i) the (il-)liquidity indicators to generally outperform the beta correction procedures in small as well as in large stock markets, across different levels of thin trad-ing, across different levels of risk (beta magnitudes) and, across all three market model frame-works, (ii) the Illiquidity (Amihud-Hasbrouck) Indicator and the Return-to-Turnover Indicator as well as the Trade-to-Trade Method to dominate in the standard and the mean-reversion frame-work, (iii) the Turnover Indicator as well as the Error Correction Model to dominate in the Bayesian framework and, (iv) the (il-)liquidity indicators to generate absolutely best indications on beta dis-tortions in the Bayesian framework as well as the beta correction procedures to generate absolute-ly best beta estimates in the standard framework.
Originalspracheenglisch
Seiten1 - 63
Seitenumfang63
DOIs
PublikationsstatusVeröffentlicht - 17 Feb 2021

Publikationsreihe

NameSSRN
Herausgeber (Verlag)Elsevier

ASJC Scopus subject areas

  • !!Economics and Econometrics
  • Finanzwesen

Fields of Expertise

  • Sonstiges

Treatment code (Nähere Zuordnung)

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  • Application
  • Theoretical

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