I

HOW
CALCULATE
e

BETA?
simpexpaon
ever!
 first
Let's understand-what is Beto?
-

Beta is measure of risk and

For
not return.
Eg-If Beta 1.2
=

xfy
movesorY (INCORRECTI

-Betanosa,
ammobanessayCORRESet
-

Bloomberg uses
regression approach
to calculate Beta.

is calculated
It on
weekly
-

returns.

which is is
-
Index
regressed
S&P 500 -

--

Note - These are

default settings
of Bloomerg.
 to calculate Beta -
If you try
an

will get
You this
Bloomberg. I
you must have observed that -

Betas
bloomberg calculate 2

500
1. Raw Beta-Regular Regression Beta.
2. Adjusted - Also called as
Beter
"Blume Beta"
-

Let's understand Blume Beta.

one more concept to understand here
-

BDRIFTING--

"mean
-

By applying concept of
Reversion". It is considered that

Beta will also revert to its mean

which is 1.

ie. Beta of is higher

If company
-
a

thank then it will revent to 1

over a period of time a rice-versa.

 Bete
1.5
Actual

-
*
Aerage
Beta of
1.

is In
This how Beta behaves. long
run. Beta which is more or us

towards 1.
than will
I
attract

This is called as
Drifting
-
 -
Now if you observe again

Actual Beta 0.44

=

Blume beter 0.632

Adjusted/Drifted / =

which shows thatactual beta

of
0.44 will move towards I and

could be 0.632 in future.

 How Drifted Betal bloom Beta
->

is calculated

Adjusted/Drifted
Bett (66Raa) +
=

- ↓
2/3rd Yard
to
weight weight to
current
Beta Average.
(0.44x0.66) +
(0.35x1)
=>

0.632
=
 I

what is the use

of Adjusted
Beta?
It is the Future Beta
~

of a

company.
-

Adjusted Beta should be used

calculate discount Rates
to -

of mal
value.
you
something! learned

REPOST - To help others ↑

SAVE
- For future Reference.

sorry etic
handwriting