Market beta shows how increases and decreases in the stock market affect moves of separate assets. The most common way to estimate future market betas is to analyze the historical financial data. According to Groenewald and Fraser, this method is appropriate only for the estimation markets betas that are “stable over time.” Historical financial data is used to predict such betas because past trends are expected to be repeated in the future. Therefore, historical volatility, which is a statistical measure of returns` dispersion over a given period, is utilized to predict future market betas.
Why is it so common to use historical financial data to estimate future market betas?
Cite this page
References
Academic.Tips. (2022) 'Why is it so common to use historical financial data to estimate future market betas'. 4 November.
Reference
Academic.Tips. (2022, November 4). Why is it so common to use historical financial data to estimate future market betas? https://academic.tips/question/why-is-it-so-common-to-use-historical-financial-data-to-estimate-future-market-betas/
References
Academic.Tips. 2022. "Why is it so common to use historical financial data to estimate future market betas?" November 4, 2022. https://academic.tips/question/why-is-it-so-common-to-use-historical-financial-data-to-estimate-future-market-betas/.
1. Academic.Tips. "Why is it so common to use historical financial data to estimate future market betas?" November 4, 2022. https://academic.tips/question/why-is-it-so-common-to-use-historical-financial-data-to-estimate-future-market-betas/.
Bibliography
Academic.Tips. "Why is it so common to use historical financial data to estimate future market betas?" November 4, 2022. https://academic.tips/question/why-is-it-so-common-to-use-historical-financial-data-to-estimate-future-market-betas/.
Work Cited
"Why is it so common to use historical financial data to estimate future market betas?" Academic.Tips, 4 Nov. 2022, academic.tips/question/why-is-it-so-common-to-use-historical-financial-data-to-estimate-future-market-betas/.