The Stability of Beta Coefficient in China’s Stock Market

Abstract

CAPM (Capital asset pricing model) is widely used in asset pricing, project evaluating and investment deciding. Beta coefficient, one of the core tasks of CAPM, its accuracy and stability are of great significance. Weekly China’s stock return data have been used. Firstly, analyzed the differences of mean value, maximum value and minimum value of beta coefficients which regressed by different length of time. Secondly, introduced T statistic to test the mean difference of beta which regressed by different length of time. Thirdly, used dummy variables to test the stability of beta coefficients and found that the optimal length of time for beta estimating was 12 months. In addition, several investigations about the relationship between the stability of bate coefficients and markets, industries, market size have been done finally.