Estimate Beta Coefficient of CAPM Based on a Fuzzy Regression with Interactive Coefficients

Qiujun  Lu; Yalei  Du

doi:10.4236/jamp.2015.36079

Yalei Du, Qiujun Lu

Abstract: In the Capital Asset Pricing Model (CAPM), beta coefficient is a very important parameter to be estimated. The most commonly used estimating methods are the Ordinary Least Squares (OLS) and some Robust Regression Techniques (RRT). However, these traditional methods make strong as sumptions which are unrealistic. In addition, The OLS method is very sensitive to extreme observations, while the RRT methods try to decrease the weights of the extreme observations which may contain substantial information. In this paper, a novel fuzzy regression method is proposed, which makes less assumptions and takes good care of the extreme observations. Simulation study and real word applications show that the fuzzy regression is a competitive method.

Keywords: CAPM, Beta Coefficient, Fuzzy Regression, Outlier

Cite this paper: Du, Y. and Lu, Q. (2015) Estimate Beta Coefficient of CAPM Based on a Fuzzy Regression with Interactive Coefficients. Journal of Applied Mathematics and Physics, 3, 664-672. doi: 10.4236/jamp.2015.36079.

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