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No D/555: Are calculated betas good for anything?

Pablo Fernandez ()
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Pablo Fernandez: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

Abstract: We calculate betas of 3,813 companies using 60 monthly returns each day of December 2001 and January 2002. The median (average) of the maximum beta divided by the minimum beta was 3.07 (15.7). The median of the percentage daily change (in absolute value) of the betas was 20%. Industry betas are also unstable. On average, the maximum beta of an industry was 2.7 times its minimum beta in December 2001 and January 2002. The median (average) of the percentage daily change (in absolute value) of the industry betas was 7% (16%). This dispersion of the calculated betas has important implications for the instability of beta-ranked portfolios.

Keywords: beta; historical beta; expected beta; systematic risk; cost equity

JEL-codes: G12; G31; M21

35 pages, April 23, 2004

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