Calculated Betas

ABSTRACT We see betas of 3,813 companies using 60 monthly extends each(prenominal) daylight of December 2001 and January 2002. The median value (average) of the maximum beta divided up by the minimum beta was 3.07 (15.7). The median of the percentage periodic channelise (in absolute value) of the betas was 20%. Industry betas atomic offspring 18 also unstable. On average, the maximum beta of an persistence was 2.7 times its minimum beta in December 2001 and January 2002. The median (average) of the percentage daily channelize (in absolute value) of the industry betas was 7% (16%). This dispersion of the calculated betas has any- important(a) implications for the instability of beta-ranked portfolios. JEL Classification: G12, G31, M21 October 16, 2008 (First version: July 7, 2004) * I would like to convey my research assistants Laura Reinoso and Leticia Alvarez for their wonderful help and Charles doorkeeper for revising anterior manuscripts of this paper. I also would like to thank José Manuel Campa, Rafael Termes and my colleagues at IESE for very helpful comments and for their sharp questions that advance me to explore evaluation problems. 1 Pablo Fernández. IESE Business School atomic number 18 calculated betas worth for anything? The beta is genius of the most important but elusive parameters in finance.

consort to the CAPM, it is a measuring rod of the so-called systematic insecurity. We differentiate the historical beta from the evaluate beta, the historical beta organism the iodine we get from the fixing of historical data, and the ex pected beta being the relevant unmatched fo! r estimating the cost of equity (the postulate return on equity). historic betas are used for several purposes: 1. 2. 3. To calculate the cost of equity of companies To rank assets and portfolios with respect to systematic risk To test CAPM and mean-variance talent We argue that historical betas (calculated from historical data) are useless for all three purposes. The capital asset set model (CAPM) defines the required return to equity in the...If you requisite to get a full essay, order it on our website: OrderCustomPaper.com

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