Prove that the half life of the difference in Problem 7.1 is years. Problem 7.1 Practitioners often
Question:
Prove that the half life of the difference in Problem 7.1 is
years.
Problem 7.1
Practitioners often assume that the true yearly β of a security decays towards βMP = 1 with time. A simple model for such a mean reversion process is
where
Show that β̂0 is given by
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