Compounding period length and the market model

George M. Frankfurter; Wai K. Leung; Paul D. Brockman

doi:10.1016/0148-6195(94)90011-6

Compounding period length and the market model

George M. Frankfurter, Wai K. Leung, Paul D. Brockman

Research output: Journal Publication › Article › peer-review

10 Citations (Scopus)

Abstract

In this paper the effect of the compounding period length (for which periodic rates of return are calculated) on the estimation of the parameters of Sharpe's market model are discussed. Aside from normative portfolio selection applications, two other distinct thrusts of financial research-stationarity of β estimates and "event studies"-are affected by the assumed compounding period. It is shown that not knowing the "true" investment horizon can cause serious biases in all these facets of application of the parameter estimates.

Original language	English
Pages (from-to)	179-193
Number of pages	15
Journal	Journal of Economics and Business
Volume	46
Issue number	3
DOIs	https://doi.org/10.1016/0148-6195(94)90011-6
Publication status	Published - Aug 1994
Externally published	Yes

ASJC Scopus subject areas

General Business,Management and Accounting
Economics and Econometrics

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10.1016/0148-6195(94)90011-6

Cite this

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AB - In this paper the effect of the compounding period length (for which periodic rates of return are calculated) on the estimation of the parameters of Sharpe's market model are discussed. Aside from normative portfolio selection applications, two other distinct thrusts of financial research-stationarity of β estimates and "event studies"-are affected by the assumed compounding period. It is shown that not knowing the "true" investment horizon can cause serious biases in all these facets of application of the parameter estimates.

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Compounding period length and the market model

Abstract

ASJC Scopus subject areas

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