Time Aggregation and the Estimation of the Market Model: Empirical Evidence

Abstract

Data for heavily and lightly traded firms are used to evaluate the effects of temporal aggregation on beta estimates, t values, and R 2 estimates. In addition to our analysis of the standard market model, dynamic and random coefficient models are estimated. This study evaluates differences in the short-term and long-term dynamic relationships between the market and each type of firm. It is found that temporal aggregation has important effects on both the specification of a market model and the stability of beta estimates.

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