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Selected Robust Methods for Camp Model Estimation

Author

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  • Trzpiot Grażyna

    (University of Economics in Katowice, Faculty of Informatics and Communication Department of Demography and Economic Statistics Bogucicka 14, 40-226 Katowice, Poland)

Abstract

This paper presents evidence that Ordinary Least Squares estimators of beta coefficients of major firms and portfolios are highly sensitive to observations of extremes in market index returns. This sensitivity is rooted in the inconsistency of the quadratic loss function in financial theory. By introducing considerations of risk aversion into the estimation procedure using alternative estimators measures of variability we can overcome this lack of robustness and improve the reliability of the results.

Suggested Citation

  • Trzpiot Grażyna, 2012. "Selected Robust Methods for Camp Model Estimation," Folia Oeconomica Stetinensia, Sciendo, vol. 12(2), pages 58-71, December.
    • Handle: RePEc:vrs:foeste:v:12:y:2012:i:2:p:58-71:n:8
    DOI: 10.2478/v10031-012-0032-7
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    References listed on IDEAS

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    4. Grażyna Trzpiot & Justyna Majewska, 2010. "Estimation of Value at Risk: extreme value and robust approaches," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 20(1), pages 131-143.
    5. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    6. Cornell, Bradford & Dietrich, J. Kimball, 1978. "Mean-Absolute-Deviation versus Least-Squares Regression Estimation of Beta Coefficients," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(1), pages 123-131, March.
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