I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the correlations, more precise betas.
I do not have a principled approach on which time period to use for the calculation. The portfolios are snapshots from end of 1999-2007, and it was already hard to get returns for only these year, so I do not use retrospective, historical returns. This is defensible, right?
I do not have enough information to re-calculate betas dynamically, nor to use more history or more of the future.
Full disclosure: This breaks down my longer question into specifics. Please bear with me. From: annual excess returns from CAPM on monthly total returns