Although betas are available from many public sources (e.g., yahoo finance, google finance), name two reasons...
Although betas are available from many public sources (e.g., yahoo finance, google finance), name two reasons to sometimes estimate betas ourselves.
Homework Answers
By definition, Beta is a measure of the volatility in the returns of a particular stock in relation to the market returns.
A) Typically, while calculating Beta ourselves, we pick a historical time horizon for analysis of how the stock prices have moved. In published Beta, we are not given the time frame over which the Beta is calculated. This may be a major shortcoming, when for example, Published Beta is calculated for last 1 year and we are trying to use this Beta for a long term investment.
B) The Market index used for Beta calculation by most published sources in US is S&P 500. However, while analysing a multi-national company having its operation spread across different countries, S&P 500 is inadequate as a market index. While calculating Beta on our own, we can capture such factors.
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