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Some evidence on the distribution of beta in Hong Kong

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  • Keith Lam

Abstract

This paper investigates the stochastic properties of the beta distribution in Hong Kong for the period 1980-93. We test the distribution of beta for one-year and two-year nonoverlapping betas, and for the cumulative overlapping betas within our sample. We find similar results for both the distribution of the nonoverlapping and overlapping betas. Our results show that our beta distributions for the overall 14 one-year betas, seven two-year betas and the 14 cumulative betas are not stable. However, the distributions are all stable within the pre-86 (1980-85) and the post-86 (1986-93) subperiods. A test for a weaker form of stability on the distribution of any two periods suggests that the distribution of all possible pairs of betas exhibit short and median term stability. However, the pairs do not show any sign of long term stability, especially those that span across the two subperiods, pre-86 and post-86 subperiods. The finding of long term instability of the beta distribution in the sample periods casts doubt on the validity of results in certain event study tests which span across the pre-86 and post-86 periods. But, on the other hand, the findings of short and median term stability of the beta distribution do suggest that betas are practically useful and reliable in tests which rely on cumulative betas.

Suggested Citation

  • Keith Lam, 1999. "Some evidence on the distribution of beta in Hong Kong," Applied Financial Economics, Taylor & Francis Journals, vol. 9(3), pages 251-262.
    • Handle: RePEc:taf:apfiec:v:9:y:1999:i:3:p:251-262
    DOI: 10.1080/096031099332320
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