Sectoral beta forecasts of securities in a thin capital market: a case of Malaysia

Abstract

This study examined the beta forecasts of securities in the overall Malaysian securities market and the industrial, finance, property and plantation sectors. Beta coeficients of 146 securities spread across the various sectors were computed for each 2-year period over the period 1984-1993 by the ordinary least squares method, Blumes's method, Vasicek' method and Dimson- Flowler-Rorke method. The beta coeficients of the I46 securities computed by each method for any 2-year period were used to forecast the beta coeficients in the subsequent 2-year period with the forecast accuracy measured by the mean square error. The best method of forecasting 2-year beta coeficients of securities over the period 1984-1993 was Vasicek's method. It was the best not only for the overall market but also for the industrial, Finance and property sectors. The Dimson-Fowler-Rorke method was the best for the thinly traded palntation sector. An analysis for each 2- year period also showed that Vasicek's method was the best for the three periods 1986-1 987, 1990-1 991 and 1992-1 993, wheras the Dimson-Flowler- Rorke method was the best for the period 1988-1989.