Beta

(redirected from beta coefficients)
Also found in: Dictionary, Thesaurus, Medical, Encyclopedia.

Beta

The measure of an asset's risk in relation to the market (for example, the S&P500) or to an alternative benchmark or factors. Roughly speaking, a security with a beta of 1.5, will have move, on average, 1.5 times the market return. [More precisely, that stock's excess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return).] According to asset pricing theory, beta represents the type of risk, systematic risk, that cannot be diversified away. When using beta, there are a number of issues that you need to be aware of: (1) betas may change through time; (2) betas may be different depending on the direction of the market (i.e. betas may be greater for down moves in the market rather than up moves); (3) the estimated beta will be biased if the security does not frequently trade; (4) the beta is not necessarily a complete measure of risk (you may need multiple betas). Also, note that the beta is a measure of co-movement, not volatility. It is possible for a security to have a zero beta and higher volatility than the market.

Beta

A measure of a security's or portfolio's volatility. A beta of 1 means that the security or portfolio is neither more nor less volatile or risky than the wider market. A beta of more than 1 indicates greater volatility and a beta of less than 1 indicates less. Beta is an important component of the Capital Asset Pricing Model, which attempts to use volatility and risk to estimate expected returns.

beta

A mathematical measure of the sensitivity of rates of return on a portfolio or a given stock compared with rates of return on the market as a whole. A high beta (greater than 1.0) indicates moderate or high price volatility. A beta of 1.5 forecasts a 1.5% change in the return on an asset for every 1% change in the return on the market. High-beta stocks are best to own in a strong bull market but are worst to own in a bear market. See also alpha, capital-asset pricing model, characteristic line, portfolio beta.

Beta.

Beta is a measure of an investment's relative volatility. The higher the beta, the more sharply the value of the investment can be expected to fluctuate in relation to a market index.

For example, Standard & Poor's 500 Index (S&P 500) has a beta coefficient (or base) of 1. That means if the S&P 500 moves 2% in either direction, a stock with a beta of 1 would also move 2%.

Under the same market conditions, however, a stock with a beta of 1.5 would move 3% (2% increase x 1.5 beta = 0.03, or 3%). But a stock with a beta lower than 1 would be expected to be more stable in price and move less. Betas as low as 0.5 and as high as 4 are fairly common, depending on the sector and size of the company.

However, in recent years, there has been a lively debate about the validity of assigning and using a beta value as an accurate predictor of stock performance.

References in periodicals archive ?
Definition and Adjustment of the Basic Beta Coefficient
A beta coefficient represents the covariance between the Global CPRI and the regional CPRI divided by the variance of the Global CPRI.
For the Treynor ratio, which looks solely at a mutual fund's systematic risk component, quantification of uncertainty is achieved by calculating a fund's beta coefficient, which is simply the covariance of the return of the portfolio relative to the market divided by the covariance of the market's returns with itself.
This study emphasizes the possibility of using beta coefficient in terms of risk level quantification in cases of the start-up company projects as well as projects that present new business activity for the investor.
The moderated regression model yielded the beta coefficients for exam (b = -.
The beta coefficients refer to the value of capacity in millions of dollars per megawatt.
3) In the second stage, the beta coefficients are inserted into Equation (1) along with the estimated market risk-premium to obtain the cost of capital estimate for each firm.
Table 1 Beta Coefficients and t-Values Among Predictor and Outcome Variables Performance Beta Coefficient t-Value Performance Cue Athlete Ability .
The units of the beta coefficients are in units of test score per microgram per deciliter of blood lead.
However, the standardized beta coefficient for growth-fostering relationships was positive while the other variables' beta coefficients were negative.