The role of stock size and trading intensity in the magnitude of the "interval effect" in beta estimation: Empirical evidence from the Polish Capital Market

Janusz Brzeszczyński*, Jerzy Gajdka, Tomasz Schabek

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

In this paper, we present empirical evidence about the "interval effect" in estimation of beta parameters for stocks listed on the Warsaw Stock Exchange. We analyze models constructed for the returns calculated using intervals of different length-that is, 1, 5, 10, and 21 trading days (corresponding to, roughly, 1 day, 1 week, 2 weeks, and 1 month, respectively). In the cases in which heteroskedasticity was present, we estimated ARCH models. The results indicate that the estimates of betas for the same stock differ considerably when various return intervals are used. We further explore the source of differences in betas for every stock by investigating the relations between them and such factors as stock size and its trading intensity. The empirical results provide evidence that a statistically significant relationship exists between these two characteristics of stocks. This finding has important practical implications for beta estimation in practice.

Original languageEnglish
Pages (from-to)28-49
Number of pages22
JournalEmerging Markets Finance and Trade
Volume47
Issue number1
DOIs
Publication statusPublished - 1 Jan 2011
Externally publishedYes

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