Please use this identifier to cite or link to this item: http://ktisis.cut.ac.cy/handle/10488/6722
Title: Robust estimation with flexible parametric distributions: estimation of utility stock betas
Authors: McDonald, James B.
Michelfelder, Richard
Theodossiou, Panayiotis 
Keywords: Finance
Capital asset pricing model
Issue Date: 2010
Publisher: Taylor & Francis
Source: Quantitative finance, 2010, Volume 10, Issue 4, Pages 375-387
Abstract: The distributions of stock returns and capital asset pricing model (CAPM) regression residuals are typically characterized by skewness and kurtosis. We apply four flexible probability density functions (pdfs) to model possible skewness and kurtosis in estimating the parameters of the CAPM and compare the corresponding estimates with ordinary least squares (OLS) and other symmetric distribution estimates. Estimation using the flexible pdfs provides more efficient results than OLS when the errors are non-normal and similar results when the errors are normal. Large estimation differences correspond to clear departures from normality. Our results show that OLS is not the best estimator of betas using this type of data. Our results suggest that the use of OLS CAPM betas may lead to erroneous estimates of the cost of capital for public utility stocks
URI: http://ktisis.cut.ac.cy/handle/10488/6722
ISSN: 1469-7688 (print)
1469-7696 (online)
DOI: 10.1080/14697680902814241
Rights: © 2010 Taylor & Francis
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