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Mean-Absolute-Deviation versus Least-Squares Regression Estimation of Beta Coefficients

Published online by Cambridge University Press:  06 April 2009

Bradford Cornell  and
J. Kimball Dietrich
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Extract

Much of the applied work in finance, for instance the literature on capital budgeting, assumes that a firm's management has an accurate estimate of the firm's beta. This estimate is presumably derived by running a regression of the form:

where:

Ri = rate of return on equity for firm i,

Rf = the risk-free rate, and

u = a white noise random variable.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 1 , March 1978 , pp. 123 - 131
Copyright
Copyright © School of Business Administration, University of Washington 1978

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References

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