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The true market-beta is essentially the average outcome if infinitely many draws could be observed. On average, the best forecast of the realized market-beta is also the best forecast of the true market-beta. Estimators of market-beta have to wrestle with two important problems. First, the underlying market betas are known to move over time.
For example, if a stock tends to show varying returns that are 50% greater than the movements of the overall market, that stock will have a beta of 1.5. The overall market has a beta of 1.0, as it ...
Using beta to evaluate a stock’s risk. Beta allows for a good comparison between an individual stock and a market-tracking index fund, but it doesn’t offer a complete portrait of a stock’s ...
The model does not appear to adequately explain the variation in stock returns. Empirical studies show that low beta stocks offer higher returns than the model would predict. [16] [17] Some data to this effect was presented as early as a 1969 conference in Buffalo, New York in a paper by Fischer Black, Michael Jensen, and Myron Scholes.
β, Beta, is the measure of asset sensitivity to a movement in the overall market; Beta is usually found via regression on historical data. Betas exceeding one signify more than average "riskiness" in the sense of the asset's contribution to overall portfolio risk; betas below one indicate a lower than average risk contribution.
But if high-beta stocks are risky and low-beta. Investors always want great returns with minimal risk. One way that stock analysts measure risk is by looking at what's known as beta values, with ...