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Beta in stock investing

Elroy chairs the Centre for Endowment Asset Management at Cambridge Judge Business School and is Emeritus Professor of Finance at London Business School. 99 has no guest but is co-hosted by Jeff Remsburg. Every day I receive a slew of emails asking about historical data. Guest: Beta in stock investing Leupold and Jim Sullivan.

Meb Faber is co-founder and the Chief Investment Officer of Cambria Investment Management, and author of five books. A Premium subscription unlocks our fair value estimate and moat rating. List of US Stock Betas for Large-Cap Stocks We provide stock beta estimates for nearly 100 US large-cap stocks. Custom reports for other stocks, e.

The first beta is a long-term estimate. The second and more novel beta estimate is a time-varying beta which reflects recent market conditions and stock price behavior. We update the report below at the end of each week. Sign up to receive Update Notifications. Note: Beta estimates are based on weekly returns over the past 250 weeks. P 500 index of large-cap stocks.

Changes over time in the characteristics of a company which affect the way the its stock price covaries with the overall market become reflected in the time-varying beta estimates. As a result, long-term and time-varying betas can differ. 2001-2018 ABG Analytics and Consulting, LLC. This article’s lead section may be too long for the length of the article. Please help by moving some material from it into the body of the article.

Beta is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors. The market portfolio of all investable assets has a beta of exactly 1. A beta greater than one generally means that the asset both is volatile and tends to move up and down with the market. An example is a stock in a big technology company. Negative betas are possible for investments that tend to go down when the market goes up, and vice versa. Beta is important because it measures the risk of an investment that cannot be reduced by diversification. It does not measure the risk of an investment held on a stand-alone basis, but the amount of risk the investment adds to an already-diversified portfolio.

The definition above covers only theoretical beta. The term is used in many related ways in finance. For example, the betas commonly quoted in mutual fund analyses generally measure the risk of the fund arising from exposure to a benchmark for the fund, rather than from exposure to the entire market portfolio. It is an example of regression toward the mean. A statistical estimate of beta is calculated by a regression method. 2 is as small as possible.

Cov and Var are the covariance and variance operators. Beta can be computed for prices in the past, where the data is known, which is historical beta. However, what most people are interested in is future beta, which relates to risks going forward. Estimating future beta is a difficult problem. One guess is that future beta equals historical beta. From this, we find that beta can be explained as “correlated relative volatility”. The portfolio of interest in the CAPM formulation is the market portfolio that contains all risky assets, and so the rb terms in the formula are replaced by rm, the rate of return of the market.