Heteroscedasticity and efficient estimates of beta

Varga, József and Rappai, Gábor (2002) Heteroscedasticity and efficient estimates of beta. Hungarian Statistical Review, 80 (SN7). pp. 127-137. ISSN 0039-0690

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Abstract

This study investigates the presence of conditional heteroscedasticity in the market model residual terms and the efficiency of beta estimates. Nonnormality and heteroscedasticity in the market model residual terms make the estimators inefficient and some of the significance tests invalid. An extension of the Autoregressive Conditionally Heteroscedastic (ARCH) model, the Bollerslev’s Generalized Autoregressive Conditionally Heteroscedastic (GARCH) model, is applied to a sample composed of securities traded at the Budapest Stock Exchange, which allows us to test whether the conditional heteroscedasticity, mainly observed in the United States market, is also present in the Hungarian stock market.

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