Forward-Looking Betas - The University of Chicago Booth School of ...

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Figure 3Realized, Forward-Looking and Historical Betas for Intel Corporation3Panel A - INTEL 180-day Realized Beta210Panel B - INTEL 180-day Forward-Looking Beta: (Correlation with 180-day Realized Beta: 0.58917)32103Panel C - INTEL 180-day Historical Beta: (Correlation with 180-day Realized Beta: 0.33415)2101996 1997 1998 1999 2000 2001 2002 2003 2004Notes to Figure: We plot the time-series of different types of betas for Intel Corp. (INTC) forthe period January 1, 1996 to December 31, 2003. Panel A plots the time series of ex-postrealized betas (β REAL ). On each day a 180-day realized beta is computed using the returns forthe following 180 days. Panel B plots the time series of forward-looking betas. On each day,a 180-day forward-looking beta (β FL ) is computed. Panel C plots the time series of 180-dayhistorical betas (β HIST ). The historical betas are computed using the previous 180 days ofreturns.34
Figure 4Pricing Errors for Intel Corporation1Panel A - INTEL 180-day Excess Returns0-11Panel B - S&P 500 180-day Excess Returns0-11Panel C - INTEL Realized Beta Predicted 180-day Excess Returns (RMSE = 0.29427)0-11Panel D - INTEL Forward-Looking Beta Predicted 180-day Excess Returns (RMSE = 0.3042)0-11Panel E - INTEL Historical Beta Predicted 180-day Excess Returns (RMSE = 0.30205)0-1Notes to Figure: Panels A and B plot the time series of 180-day excess returns on Intel corp.(INTC) and the S&P 500 index for the period January 1, 1996 to December 31, 2003. On eachday the return for the following 180 days is plotted. Panels C, D and E plot the excess returnβ(R m − R f ) predicted by the CAPM using the three different betas. Panel C uses (ex-post)realized beta, Panel D uses forward-looking beta and Panel E uses historical beta. The RootMean Squared Error (RMSE) is reported in parentheses for each of the predictions.35
Page 2 and 3: 1 IntroductionFew concepts are more
Page 5 and 6: academic literature remains divided
Page 7 and 8: which can be rewritten asVAR i = β
Page 9 and 10: The price of this contract can be i
Page 11 and 12: across moneyness levels (K/S) to ob
Page 13 and 14: the S&P500 is -0.072.We compare the
Page 15 and 16: historical beta. The mixed beta is
Page 18 and 19: options.6.1 The Idiosyncratic SkewR
Page 20 and 21: to the computation of forward-looki
Page 22 and 23: that are very small.We conclude fro
Page 24 and 25: If we set F equal to the initial st
Page 26 and 27: If the risk associated with w 3it i
Page 28 and 29: [14] Canina, L. and S. Figlewski, 1
Page 30 and 31: [41] Figlewski, S., 1997, Forcastin
Page 32 and 33: Figure 1Forward-Looking Volatility
Page 36 and 37: Figure 5Forward-Looking Volatility
Page 38 and 39: Figure 7Forward-Looking Beta for th
Page 40 and 41: Mean Firm 180-day Historical BetaFi
Page 42 and 43: Mean Firm 180-day Excess ReturnFigu
Page 44 and 45: Approximation Error (%)Approximatio
Page 46 and 47: Approximation Error (%)Approximatio
Page 48 and 49: Table 2Descriptive Statistics for O
Page 50 and 51: Table 3Standard Deviation, Skewness
Page 52 and 53: Table 5Univariate Forecasting Regre
Page 54 and 55: Table 7Bivariate Forecasting Regres
Page 56 and 57: Table 9ACAPM Pricing Errors for Jan

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