Return Interval and Estimation Period: On the Estimation of Betafor Listed Firms in the Stock Exchange of Thailand

Abstract

The study of relationship between risk and return on investment is the most important thing for investment decision makings that face financial managers.This relationship is necessary for Portfolio management, Capital budgeting and Performance evaluate and comparison. One popular measure of the risk is the beta. The beta represents the market risk of a security, also called ‘systematic risk’ that cannot be eliminated through diversification. A time-series regression is often used to estimate the beta and requires the financial manager to select both a return interval and an estimation period. However, researchers do not know which interval and estimation period is appropriate. This study examines the return interval and estimation period the financial manager should select when estimating beta. The results show that the financial manager should select the daily return interval and an estimation period of two years to get the beta with smallest error or greatest precision of the beta estimate.