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 ?
where [r.sub.i,t] - rate of return of particular stock i for a period from t-1 to t, [[alpha].sub.i] - constant of regression model, [[beta].sub.i] - regression coefficient or beta coefficient of the stock i, [r.sub.w,t] - rate of return of world market portfolio for the period from t-1 to t, [[mu].sub.i,t] - regression residual, n - number of stocks in the sample, T - periods in days, weeks, months.
Beta coefficients from the stratified approach are identical to those from the augmented product term approach.
We observed approximately 40% lower risk of MetS at the highest quantile of OBS compared to reference quantile (lowest quantile) among study participants by beta coefficient adjusted by area, sex, age, and BMI.
The beta coefficient values were: Dedication ([beta]= -.202), satisfaction with life ([beta]= -.127), openness to experience ([beta]= -.124), growth ([beta]= .204), nutrition ([beta]= -.201), responsibility for one's health ([beta]= .221) and absorption ([beta]= .359).
The beta coefficients reported in all columns suggest that variations in the timing of agricultural transition has a much larger economic effect than all other indicators of early development, and hence is much more powerful in explaining the variation in technology adoption levels in 1500 AD across countries.
The second most important set of variables are those that capture changes in employment status; aside from initial per capita income the single largest Beta coefficient is on the number of employed male household members.
The probability value of Hausman Test is less than 0.05 which shows that Fixed Effect model is accepted showing that logfear is significant at 5% level of significance with negative values of beta coefficients. Logroa is significant at 1%.
A comparison between the two levels of fatness (Table 3 versus Table 4) demonstrates that for either adiposity indicator the associations with HOMA-IR were stronger among the high-fatness students (beta coefficients 0.43-0.52) than among the lower-fatness students (0.30-0.37).
In the CAPM, individual systematic risk related to a company is expressed through a so-called beta coefficient, a measure of risk relative to a peer group (Vinturella and Erickson, 2004).
Are replaced previous values in CAPM equation, for estimating the required profit rate of concerned assets: [k.sub.e] =[R.sub.f] +[beta]xR[P.sub.M] From equation one can see that the estimating of [k.sub.e] value by the CAPM method starts from risk-free interest rate, [R.sub.f], to which are added a risk premium equal to the risk premium on market, R[P.sub.M], increased or minimize so as to reflect the specific risk of those assets according to its beta coefficient.
All beta coefficients are statistically significant at the 5 per cent level.
Finally, it may be useful to investigate the presence of volatility clustering in the beta coefficients of diversified stock portfolios.