beta prediction time horizon

trebor · July 23rd, 2013, 8:35 pm

Hi. I am using a beta approach to hedge. Do you know of any literature that discusses the time horizon beta should be used for (ie if I use a 60 day period to estimate my beta. What is the best time horizon to predict? Also 60 days? Thanks in advance

Alan · July 25th, 2013, 3:57 pm

In general, beta's are notoriusly unstable, so there may be no reliable answer. BTW, you should certainly look at Blume's adjustment for betas.In the end, you have an ad hoc hedging plan. The real issue is how to conduct a comprehensive testing plan for that.