Beta equation


Also found in: Dictionary, Thesaurus, Legal, Encyclopedia, Wikipedia.
Related to Beta equation: Alpha equation

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 Equation

A way to calculate beta, which is the measure of a security's volatility relative to that of the wider market. There are several different beta equations.