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Betas used by professors: A survey with 2,500 answers

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  • Fernandez, Pablo

    () (IESE Business School)

Abstract

We report 2,510 answers from professors from 65 countries and 934 institutions. 1,791 respondents use betas, but 107 of them do not justify the betas they use. 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 state that calculated betas "are poorly measured and have many problems". Only 0.9% of the professors justify the beta using exclusively personal judgement (named qualitative, common sense, intuitive, and logical magnitude betas by different professors). The paper includes interesting comments from 160 professors. We all admit that different investors may have different expected cash flows, but many of us affirm that the required return should be equal for everybody: That is a kind of schizophrenic approach to valuation. Most professors teach that the expected cash flows should be computed using common sense and good judgement about the company, its industry, the national economies¿ However, many professors teach a formula to calculate the discount rate (instead of using again common sense).

Suggested Citation

  • Fernandez, Pablo, 2009. "Betas used by professors: A survey with 2,500 answers," IESE Research Papers D/822, IESE Business School.
  • Handle: RePEc:ebg:iesewp:d-0822
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    File URL: http://www.iese.edu/research/pdfs/DI-0822-E.pdf
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    Keywords

    historical beta; calculated beta; common sense;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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