Hi, I’ve encounter a question on CFA vol 6 pp 519 on the portfolio mgt. On the bottom of that page, statement 2 says that “the estimation of beta is affected by several factors, including regression to the mean, VOLUME OF TRADING , and the market proxy used.” Question 15 on the next page asked if this statement is correct. I opt to say it is not correct becoz “volume of trading” has nothing to do with the beta estimation. The beta is the covariance of stock to market divided by the variance of market. But the answer is that this statement is CORRECT. Anyone here can clarify?

Think of how volume of trading affects spreads. Greater information in the market reduces the impact of tail-end variance.