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JOURNAL OF APPLIED BUSINESS AND ECONOMICS
Estimating the Current Value of Time-Varying Beta
Author(s): Joseph Cheng, Elia Kacapyr
Citation: Joseph Cheng, Elia Kacapyr, (2012) "Estimating the Current Value of Time-Varying Beta," Vol. 13, Iss. 2, pp. 167 - 174
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This paper proposes a special type of discounted least squares technique and applies it to the Capital Asset Pricing Model. There is evidence that the value of beta, the measure of risk in the model, varies over time. The technique, entropic least squares, detects differences in the past and present standard error of the model. The rate of change in this standard error is referred to as the entropy rate. Unlike discounted least squares where the discount rate must be assumed in an ad hoc manner, entropic least squares estimates the entropy rate simultaneously with the parameters of the model.
