medium · FRM Part 2 Risk & Investment Management
When adjusting the market beta of an illiquid asset for reporting lags, a practitioner should ideally:
- Use the beta of a similar publicly traded asset and subtract a liquidity haircut.
- Sum the contemporaneous beta with several lags of the market index returns.
- Ignore the market beta as private assets are by definition uncorrelated with public indices.
- Divide the reported beta by the observed first-order autocorrelation coefficient.
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