A note on beta forecasting

The issue of beta forecasting is explored using Australian stock returns data. A simple market model is fitted to individual stock data over the period 1983 to 1987 and the beta estimated from this sample is used to forecast the market model beta over the period 1988 to 1992. It is found that a simple transformation of the initial period beta produces a forecast error which is remarkably close to the transformation which produces the minimum least squares forecast error. This suggests that the more complex forecasting techniques proposed in the literature may not be worth the additional computational effort.