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In the CAPM theory Beta of asset $i$ are estimated in this way:

$ \beta_i = \frac{\sigma_{im}}{\sigma^2_m} $ where $\sigma_{im} = \rho_{im} \sigma_i \sigma_m$

But all these data are historical data. So, I'm wondering what if I use

  • $\sigma^2_m$ <- Implied volatility of SP500 (VIX)

  • $\sigma_{im}$ <- implied volatility for the asset $i$ using the at-the-money call option with a 1-month maturity.

  • $\rho_{im}$ will be statistically estimated.

This way is a better estimation of the $\beta_{i}$ for the next month?

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  • $\begingroup$ There's a number of papers on using option-implied betas to explain the stock returns. $\endgroup$ – John Dec 3 '15 at 23:08
  • $\begingroup$ There are methods of calculating option implied correlation as well for certain equities. See here: cboe.com/micro/impliedcorrelation/… $\endgroup$ – Kevin Pei Dec 3 '15 at 23:24
  • $\begingroup$ @sparkle, it would be very good to get your feedback on the answer below. $\endgroup$ – phdstudent Feb 2 '16 at 15:13
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Yes it is a better way. Just take a look to figure 3, from Buss and Vilkov (2012, RFS): enter image description here

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