Compounding period length and the market model

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

Research output: Journal PublicationArticlepeer-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 languageEnglish
Pages (from-to)179-193
Number of pages15
JournalJournal of Economics and Business
Volume46
Issue number3
DOIs
Publication statusPublished - Aug 1994
Externally publishedYes

ASJC Scopus subject areas

  • Business, Management and Accounting (all)
  • Economics and Econometrics

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