Global Market Report - Forty Years of Better Betas - March 2013

Mar 12, 2013

In this report, we look at the period between January 1997 and December 2012, comparing two methods of estimating the market risk of a portfolio: historical beta and predicted beta, based on the Barra Global Equity Model (GEM3). We investigate this question: which estimation approach performed best during periods of market stress? We find that during our sample period, predicted beta appears to be a more accurate than historical beta as a gauge of the defensiveness or aggressiveness of a portfolio.