Critical Finance Review > Vol 11 > Issue 1

Simply Better Market Betas

Ivo Welch, Anderson Graduate School of Management at UCLA, USA,
Suggested Citation
Ivo Welch (2022), "Simply Better Market Betas", Critical Finance Review: Vol. 11: No. 1, pp 37-64.

Publication Date: 21 Feb 2022
© 2022 Ivo Welch
C58 (Financial Econometrics)G11 (Portfolio Choice)
Market betaFactor exposuresRobust estimation


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In this article:
1. Ex-Post OLS Market Betas as Estimation Targets 
2. The Beta Estimators 
3. Data 
4. Test Design 
5. Empirical Evidence 
6. Conclusion 
7. Appendix: Implementation of BSWA 


This paper introduces a robust and easy-to-implement one-pass market-beta estimator. It only requires first winsorizing daily stock rates of return at −2 and +4 times the contemporaneous market rate of return. In predicting future market-betas, this “slope-winsorized” beta estimator predicts future betas better not only than OLS betas, Bloomberg betas (ubiquitous on financial websites), and Vasicek (1973) betas, but also published estimators that require intra-day data, super-computers, or financial statements. Moreover, using weighted-least squares to exponentially decay the weight of aged return observations (with a half-life of about four months) further improves the estimates.