Advanced Search
MyIDEAS: Login to save this paper or follow this series

Beta = 1 does a better job than calculated betas

Contents:

Author Info

  • Fernandez, Pablo

    ()
    (IESE Business School)

  • Bermejo, Vicente

    (IESE Business School)

Abstract

We compute the correlations of the annual stock returns (1989-2008) of the Dow Jones companies with a) Rm; and with b) Rm; and find that the second correlation (assuming beta = 1 for all companies) is higher than the first one, on average, and for all companies except Caterpillar and General Motors. Rm is the return of the S&P 500. Beta = 1 works better than calculated betas! Not surprisingly, Adjusted betas (0.67 calculated beta + 0.33) have higher correlation than calculated betas. But Adjusted betas have lower correlation than beta = 1. We do the exercise with 4 calculated betas every year end vs. the S$P 500, using: a) monthly data of last 5 years; b) monthly data of last 2 years; c) weekly data of last 5 years; d) daily data of last 5 years. We find similar results with the four betas. Despite this results, Fernandez (2009) reports that 97.3 % of the professors that justify the betas use regressions, webs, databases, textbooks or papers (the paper specifies which ones), although many of them admit that calculated betas "are poorly measured and have many problems". Only 0.9% of the professors justified the beta using exclusively personal judgments.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.iese.edu/research/pdfs/DI-0825-E.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Silvia Jimenez)
Download Restriction: no

Bibliographic Info

Paper provided by IESE Business School in its series IESE Research Papers with number D/825.

as in new window
Length: 22 pages
Date of creation: 15 Sep 2009
Date of revision:
Handle: RePEc:ebg:iesewp:d-0825

Contact details of provider:
Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
More information through EDIRC

Related research

Keywords: historical beta; calculated beta; adjusted beta; common sense;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ebg:iesewp:d-0825. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silvia Jimenez).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.