Original Research

Improved beta estimation on the Johannesburg Stock Exchange: A simulation study

D. C. Bowie, D. J. Bradfield
South African Journal of Business Management | Vol 24, No 4 | a872 | DOI: https://doi.org/10.4102/sajbm.v24i4.872 | © 2018 D. C. Bowie, D. J. Bradfield | This work is licensed under CC Attribution 4.0
Submitted: 17 October 2018 | Published: 31 December 1993

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D. C. Bowie, Department of Statistical Sciences, University of Cape Town, South Africa
D. J. Bradfield, Department of Statistical Sciences, University of Cape Town, South Africa

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In this article we focus on beta estimation in the thinly-traded environment of the Johannesburg Stock Exchange (JSE). We build on existing literature by evaluating a beta estimation procedure known as the trade-to-trade which has not until now been considered in the context of the JSE. We contrast our results with two known estimation procedures, i.e. the Cohen et al. and the traditional ordinary least squares (OLS). The trade-to-trade methodology, the estimator proposed by Cohen et al. and OLS are objectively assessed for shares typical of the JSE on the basis of unbiasedness and efficiency in the controlled environment of a simulation study. The trade-to-trade technique is found to be superior on both counts and is recommended as the appropriate technique for beta estimation on the JSE.


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