Return Interval, Firm Size and Systematic Risk on the Dutch Stock Market

Abstract

In this paper we investigate the behavior ofbetas of50 Dutch firms as a function of the return measurement interval. We find beta estimates measuredfrom different intervals differ significantly from each other. As the sample mainly contains stocks that are relatively thin compared to the index, beta estimatesfrom short intervals are on average lower than those obtained from longer intervals. The results further indicate that there exists some variability in the beta coefficients for each interval length. Betas depend on the manner daily prices are juxtaposed to calculate the returns. A way to account for this variability is to average the different betas for each interval length. Asymptotic betas are also computed to show the appropriateness of this method. Finally we show that the size effect is reduced when the interval length is increased, although it remains statistically significant.

Time Dependence of CAPM Betas on the Choice of Interval Frequency and Return Timeframes: Is There an Optimum?

“…The results also demonstrate that small firms have, on average, lower beta coefficients than large firms. 2 " Corhay and Rad (1993) finds that in a sample of 50 thinly trading Dutch stocks the "beta estimates from short intervals are on average lower than those obtained from longer intervals" and that there is variability in the coefficients for varying interval lengths. The Corhay (1992) study has its focus on the matter of asynchronous trading and the problems that such non-overlapping estimation windows introduce into robust beta estimation.…”