59. I use whatever is suggested in the teaching note. 60. I have recently used betas derived from options prices. See Christoffersen, Jacobs and Vainberg (2006). 61. I use betas because they're the standard and the best we seem to have for now. But I always reference the articles that explain the problems with beta as well. 62. a) I deal in middle market M&A. Buyers have an expected ROE in their mind. It does not matter where they get it. If the buyer is a PE, then they build it up starting with what their LPs want and then adding expenses, carry, etc. b) If one is doing a corporate M&A deal, then Beta is used so the analyst or the investment banker can "defend" their valuation, "impress" management and come across as "finance gurus". c) My colleagues in the valuation field do use Beta. They use Beta of public companies in the same industry. 63. Beta is a simple method and it is used in the "real world." It is really not so helpful, although easy to use. 64. I use beta in my valuations. In consulting, it is essential to fully support your estimates. 65. Referees want to see them as the underlying model. I need a model anyway, and these are the safe bets that referees will not challenge. 66. If I am in charge of the seller, I argue a beta as low as possible: After dealing many years in academic and professional life with cost of capital, I might summarize my experiences as follows: it does not exist any true/objective cost of capital figure. When calculating cost of capital, there are always discretionary decisions to be made: Cost of capital is not a matter of truth/scientific derivation. Therefore I decided not to search for the “true“ cost of capital, that is “love’s labors lost“. 67. Students tend so see CAPM as just one recipe from a coking book. 68. CAPM has problems that the academic profession has generally swept under the rug. I had to buy 3 estimates of industry costs of capital to convince two of my colleagues that CAPM was incorrect.
Pablo Fernandez Ch 17 Survey Betas used by professors: 2,500 answers IESE Business School, University of Navarra CH17- 15 69. Beta is the first order success and risk factor of any portfolio, the most important parameter for a single investors to settle in investing. 70. I definitely use betas, because I haven't yet found a way to avoid teaching CAPM (still looking). 71. Most of the time, I recommend just using a market beta of one. In class, I point out (for the benefit of economists) that betas are elasticities. I have never seen a finance textbook that mentions this. 72. I teach beta to my students because Fortune 500 firms use the CAPM to estimate their cost of equity. 73. I use the Beta both in class and for some consulting work. I don’t believe a particular beta estimate is justifiable, so I rely on sensitivity analysis to show how our results change given the size of the estimation error. I actually try to put more emphasis on the size of the estimation error than the actual estimate of the beta.