Beta equation (security)
The market
beta
of a security is determined as follows: Regress
excess returns
of
stock y on excess returns of the market. The slope coefficient is beta. Define n as
number of observation numbers. Beta =
[(n) (sum of [xy]) ][ (sum of x) (sum of y)]/
[(n) (sum of [xx]) ][ (sum of x) (sum of x)]
where: n = # of observations (usually 36 to 60 months)
x = rate of
return
for the S&P 500 index
y = rate of return for the security
Related:
Alpha
Beta
The measure of a fund's or a
stock's
risk in relation to the
market
or to an
alternative
benchmark
. A beta of 1.5 means that a stock's
excess return
is
expected to move 1.5 times the market excess returns. E.g., if market excess
return is 10%, then we expect, on average, the stock return to be 15%. Beta
is referred to as an
index
of the
systematic risk
due to general market
conditions that cannot be diversified away
S&P Rating
Rating
service provided by S&P that indicates the amount of
risk
involved with different
securities
.
Systematic risk
Also called
undiversifiable risk
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 Spring '09
 ASDF
 Capital Asset Pricing Model, Weighted average cost of capital, Asset Pricing Model, excess returns

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