Outlier-resistant estimates of beta

R. Douglas Martin, Timothy T. Simin

Research output: Contribution to journalArticlepeer-review

24 Scopus citations

Abstract

Depending on their location, outliers in returns can substantially bias ordinary least-squares estimates of beta. We introduce a new beta estimate that is resistant to outliers that cause the most bias in OLS estimates but produces estimates similar to OLS for outlier-free data. The outlier-resistant beta is an intuitively appealing weighted least-squares estimate with data-dependent weights. We show that the resistant beta is a better predictor of future risk and return characteristics than is the OLS beta in the presence of outliers and is, therefore, a valuable complement to the OLS beta. Our analysis reveals thai small companies' betas are most susceptible to outliers.

Original languageEnglish (US)
Pages (from-to)56-69
Number of pages14
JournalFinancial Analysts Journal
Volume59
Issue number5
DOIs
StatePublished - Jan 1 2003

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Outlier-resistant estimates of beta'. Together they form a unique fingerprint.

Cite this