Adjusting for Beta Bias: An Assessment of Alternate Techniques: A Note

Authors

  • THOMAS H. McINISH,

  • ROBERT A. WOOD

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    • Associate Professor of Finance, University of Texas at Arlington and Associate Professor of Finance, The Pennsylvania State University, respectively. The authors wish to thank Elroy Dimson, Keith Ord, Myron Scholes, Robert Schwartz, the York University Finance Workshop, and the Rutgers University Finance Workshop for their helpful comments. An earlier version of this paper was presented at the annual conference of the Western Finance Association, Vancouver, June 1984. The authors share equally in the content and remaining errors.

ABSTRACT

This paper tests the effectiveness of techniques proposed by: Scholes-Williams; Dimson; Fowler, Rorke, and Jog; and Cohen, Hawawini, Maier, Schwartz, and Whitcomb to control for bias in beta estimates from thin trading and price adjustment delays. Each technique produces beta estimates that reduce the amount of this bias, but the amount of reduction in the best case is only 29%.

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