Represented in India | Mozambique | Poland | South Africa | Contact (Johannesburg) +27 (0)10 822 7663

The impact of reference-day risk on beta estimation and a proposed solution

The ability to accurately estimate systematic risk (or beta) when reference-day risk is considered, is an ineluctable requirement for all applications of the capital asset pricing model (CAPM).

This research documents evidence of reference-day risk for shares on the Johannesburg All Share Index. In response to the need for greater accuracy when estimating systematic risk, this paper contributes a volume-weighted-average-price (VWAP) method for estimating beta which may be employed when reference-day risk is considered.

Furthermore, this research applies a graphical time-series approach to test the underlying risk-reward tenet postulated by the CAPM. Using beta as a measure of systematic risk, this research finds that the CAPM appears to imperfectly specify the risk-reward trade-off.


Available at:


Alternatively, available upon request from Keshav Sahadev