Beta Equations financial definition of Beta Equations
Beta equation (redirected from Beta Equations)
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.
- [(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
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.
References in periodicals archive
Therefore, standard beta equations for this industry in which DFL is implicitly assumed exogenous would suffer from serious simultaneous-equation bias.
To summarize, a statistically significant coefficient on DOL (or DFL) in a beta equation is not a reliable evidence to support the underlying hypothesis that either variable has caused changes in beta.