Predicatable Dynamics in Market, Size and Value Betas

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Abstract: This paper examines if the dynamics in beta is predictable out-of-sample. Unlike previous research we focus on the predictability of both market beta and value and size betas. We provide evidence that the dynamics in all three betas are predictable. However, this result is highly dependent on the particular specification used to model the time-variation in betas and we conclude that more flexible specifications provide superior results.

Keywords: out-of-sample beta forecasting; market, size and value betas