I am trying to replicate the beta value that yahoo calculates but I am getting different results. According to Yahoo, its beta is calculated using 5 year returns against the SP500: yahoo beta

I assume that daily values are used though it is not stated. I downloaded historical prices for MSFT from Dec 2009 to Dec 2014 and replicated this calculation, using beta = cov(MSFT, SP500)/var(SP500). I obtain a result of about 0.89 whereas Yahoo quotes a beta of 0.69. Using a 3 year horizon, I am getting 0.96 which is very close to the Beta quoted by Google (0.98). So, I think Google uses something like a 3 year horizon (though I don't know the exact dates) but Yahoo is completely off. Does anyone knows how it is calculated?

  • 3
    By the way, I managed to figure out how Google finance calculates beta. It regresses against the SP500 using MONTH-END closing prices for the last five years. – Algorythmist Dec 9 '14 at 5:17

From Yahoo! Finance Help

The Beta used is Beta of Equity. Beta is the monthly price change of a particular company relative to the monthly price change of the S&P500. The time period for Beta is 3 years (36 months) when available.

Source: https://help.yahoo.com/kb/finance/SLN2347.html?impressions=true (+Stock Price History)

Yahoo Finance calculates beta from monthly prices over a time of three years. The S&P500 is used as the benchmark

You need 37 monthly prices (so you can get 36 returns) on the first trading day of each month.

  • The final price should be on the first trading day of the previous month.
  • The first price should be on the first trading day of the month 36 months prior to the previous month.
  • These are closing prices (not the adjusted close)

You then calculate the monthly returns for your stock and benchmark. You can then calculate beta using Excel (for example, using the slope function). e.g. =SLOPE(range of stock returns, range of benchmark returns)

Source: This website contains more detail, and has reproduced the beta given by Yahoo Finance for a specific stock.

  • FYI, it seems that Yahoo Finance method uses total return adjusted data (all dividends included) for the stock and price return (no dividends) for the index. You will certainly want to investigate the differences in using the S&P 500 Index versus the S&P 500 Total Return Index. – Norgate Data May 21 '15 at 9:29

Beta calculation varies quite a bit as you've already noted. Using monthly or weekly closing prices is fairly common though; I don't know of anyone who uses daily prices. Yahoo gets its data from CapitalIQ so you may want to look over there. Good luck!

  • Interesting answer, but it would benefit an awful lot from a source. – SRKX Dec 10 '14 at 2:44

Your Answer

 

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.