Questions tagged [beta]

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35 views

How does Bloomberg calculate beta?

I tried manually calculating Bloomberg's historical beta based on the historical spread of SPY and equity price data, but I couldn't get the same result. I read somewhere that Bloomberg's default ...
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1answer
79 views

Relationship between Beta and implied volatility

Is there any way to make use of the Beta of an underlying and index, and the implied volatility of options on that underlying and the index? To specify, if we have available the implied volatility of ...
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2answers
20 views

Should diverging valuation multiples affect beta estimate?

Suppose we experience a significant equity market crash. All equities are affected, but the drawdown disproportionately affects equities in a specific sector - for example, say the broad equity market ...
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46 views

Arbitrage in a Single Index Model

Simple question really, but I'm very confused by the starting point. Let's assume that we have a portfolio whose excess returns can be described by the following equation from the single index model: ...
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2answers
118 views

How can beta be negative? [closed]

I've been reading about the security market line and the definition of beta as $$\beta_i = \frac{Cov(R_i, R_m)}{Var(R_m)} $$ for any asset (doesn't have to be an efficient portfolio), and have read ...
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217 views

Why Index Futures can be used as a Market benchmark?

I heard that we can use, say, Eurostoxx Futures as a benchmark to compute the beta of the index's components. Is this relevant? If so, how do we deal with the futures' expiry? Thanks
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22 views

BEKK Garch for time-varying beta in python

I am currently trying to analyse stocks of the S&P500 for their time-varying beta using BEKK Garch in python(jupyter). Unfortunately, I can't find any good packages and the documentation for bekk ...
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87 views

Beta Adjusted Return

I'm a bit confused about the definition of the 'Beta Adjusted Return', say I have benchmark whose return is $r$ and a stock whose return is $R$, the beta adjusted return is defined as $$ ...
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36 views

Why is the efficient portfolio assumption necessary for the CAPM model?

One of the main assumption in the CAPM model is that all the investors are rational and they hold the most efficient portfolio for a given level of risk. What difference does this assumption make? ...
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1answer
63 views

What is the intuition of CAPM model with Intercept at 0?

I only have a very general theory-based knowledge on Jensen's Alpha. I'm very curious about Capital Asset Pricing Model with intercept at 0. May I know what is the intuition behind this? What does it ...
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1answer
41 views

How to build a portfolio following the Smart beta process by dividend? [closed]

I'm having trouble finding the method to track smart beta dividend management. I have an Excel file which contains the prices and the dividends of certain companies, and I want to build a portfolio ...
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1answer
54 views

Beta and standard deviation

IS beta of a stock formula equals to correlation coefficient multiply with annualized standard deviation of stock A divide annualized standard deviation of market . i am not sure whether to use ...
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3answers
163 views

CAPM and Beta: problem with regression (Beta is too low yet statistically significant?)

I have two time series of daily return calculated as $\frac{Price_{t}}{Price_{t-1}} -1$. One is the daily returns of a portfolio, the other the daily returns of the index (MSCI World). Period is 2020 ...
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54 views

covariance matrix in the CAPM model

I'm running a simulation for a 5 asset portfolio, calculating the optimal weights of each asset both with the statistical model (i.e. single index) and with the CAPM. my question is: how do you ...
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1answer
52 views

relationship between the expected rate of return and the value measured by the beta factor

Assume that only two companies are listed on an effective capital market: companies A and company B. Capitalization (market value of all shares) of both companies is the same. Expected rate of return ...
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1answer
32 views

Beta of sum or sum of betas

When interested in the beta of a portfolio, I see people make a weighted sum of the portfolio components' betas. Intuitively, I would have calculated the beta of the portfolio based on its aggregate ...
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1answer
38 views

CAPM Model, is this exercise done correctly?

Hey i need to know if the task is done correctly, please help :) Standard deviation of the rate of return on the market portfolio is equal to $\sigma_{MP}=1,5\%=\frac{15}{1000}$. I have portoflio ...
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2answers
273 views

Hedge backtesting: ex-ante Beta vs observed Beta (is this even possible?)

A global equity portfolio has for objective to outperform a benchmark (MSCI World). I hedge the sensitivity of the portfolio to MSCI World (the beta) so that only the alpha remains unhedged. The ex-...
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33 views

Performance attribution and monthly rebalance: Is a month enough data to calculate Beta and Alpha?

A portfolio is built systematically by calculating scores and rebalanced each month to invest only in the 80 best scores. Scores change frequently and therefore the portfolio changes each month, ...
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3answers
82 views

Hedge performance in times of volatility: Beta changes impacting PnL during market rebound

I hedge a portfolio of Global Equities (200 stocks within MSCI World universe) by shorting futures on MSCI World Net Total Return. The hedge is calculated using Beta. Beta is calculated using a risk ...
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29 views

How does yahoo finance calculate Beta [duplicate]

When I calculate Beta indicator for FB relation to SPY, i.e BETA(SPY,10), I get other numbers than yahoo finance. My calculation is COV(%change(FB),%change(SPY))/VAR(%change(SPY)) for 10 days. Can ...
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65 views

Calculation of portfolio beta (CAPM)

Let the market risk be $\sigma_m=28\%$. A portfolio consists of four stocks, all with the same weight ($w_i=0.25$ for all $i$). We also know that $\sigma_a=18\%,\sigma_b=36\%,\sigma_c=22\%,\sigma_d=17\...
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2answers
96 views

Outperform the market with a Beta lower than 1, is it possible? [closed]

I have a portfolio which seems to have outperformed the benchmark for the past 2 years however the risk system I use advises that using recent past data (lookback period of 2 years) the Beta to this ...
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164 views

How to derive the CAPM from maximizing the Sharpe ratio?

I know how to derive at the CAPM from a microeconomic foundation. In a recent University course I stumbled over a slide that derived the CAPM solely from the Sharpe ratio: I cant come up with that ...
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37 views

Benchmark for fund in Fama French 3 factor setting

I found this question during my preparation for an exam. It looks easy, but I am not quite sure how to answer it. Consider a fund A with following factor exposures $\beta_{M}=0.8$, $\beta_{SMB}=0.4$,...
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39 views

How to interpret a value stock with 0 beta to HML portfolio

I am unsure of how to interpret stocks that have a low P/b but have a low beta when regressed onto the HML portfolio. Conversely, I have found stocks that are not cheap but have a high beta to HML ...
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2answers
88 views

Variation in portfolio vs systematic risk

I am currently studying the CAPM, and I stumbled upon something that I can see is different, but I can't make the distinction. This isn't some mathematical question per se, but I hope that you maybe ...
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2answers
56 views

Asset risk relative to market portfolio risk - derivation problem

I am currently studying the CAPM, and at the moment I am focusing on beta. I am using the following book: Danthine, J-P and J. B. Donaldson (2014): Intermediate Financial Theory (3rd Edition) http://...
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1answer
118 views

Multi Factor rolling beta

I want to monitor HF/CTA long/short position and calculate beta on different HF indices in Excel/VBA, see graph below. I can't seem to find any papers on "Multi-factor based rolling beta", so my ...
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1answer
86 views

What is market sensitivity and momentum sensitivity?

I have daily data of about 29 stock prices and 1 index prices of past 7 years I calculated beta as the ratio of covariance(Rm,Ri) / variance(Rm) I also calculated 200 days rolling momentum score as ...
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1answer
70 views

Question about CAPM Betas - Causes of Beta Movement Query

CAPM betas are measures of systematic risks, which include things like the exchange rate, inflation, interest rates, etc. What I'm confused about is described below: E.g. suppose I'm looking at one ...
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65 views

Why don't these betas match?

I am sure I am missing something simple, but I would expect my portfolio beta when regressed against the market to match my individual component betas multiplied by the portfolio weights. I have ...
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3answers
228 views

Definitions of Beta

Definition of Beta It is generally understood that the beta of an asset $i$ is given by coefficient of the linear regression of the asset returns on market ($m$) returns, i.e. $$\beta_i = \frac{\rho\...
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1answer
103 views

What is the effect of leverage (ability to short stocks) upon the Fama-French regression coefficients?

I have optimised a set of portfolio and subsequently regressed the returns against the fama-french-Carhart factors. I have two portfolio, one in which short sales are allowed (the portfolio can take ...
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47 views

How to make a portfolio neutral to a Fama-French factor?

I have quintiles of 58 companies each that I have performed a CAPM regression with. I now wish to try and make these quintile portfolios neutral to Fama-French factors and was hoping for some insight ...
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1answer
199 views

Questions about beta, correlation, and covariance

Currently, I calculate beta, correlation, and covariance measures using daily log normal returns of Security A and Benchmark A. What would it mean if I were to use daily log normal excess returns in ...
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39 views

Covariance time frequency

I have rolling 3-year returns for an asset and a benchmark. I want to compare the covariance of the asset and benchmark, should I use the covariance of the rolling 3-year returns or the covariance ...
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2answers
104 views

Beta: Cumulative vs. Simple Returns

How would calculating Beta using cumulative returns differ from Beta calculated with monthly returns? Is one more appropriate to use than another? https://en.wikipedia.org/wiki/Beta_(finance)
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1answer
96 views

Why is the CAPM Beta defined this way - Beta hedging

Let's say I have two equity indices X and Y. Assume they are negatively correlated with some leverage. I want to hedge X with Y. I have seen many ways of computing a beta to describes the ...
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2answers
151 views

How to handle Holidays in Time-Series Datasets?

Im currently analyzing a Dataset of the German Stock market. While Holidays like Christmas or New Year aren't a problem for Return Calculation or Portfolio Performance, im testing some regressions and ...
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2answers
145 views

Estimated betas and optimal portfolio

I ran a regression on 20 assets to estimate their beta with different methods. I would like to see the differences of these estimation differences in terms of mean-variance optimal portfolio. How can ...
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2answers
282 views

Best practice when computing beta coefficient

I was wondering how one should choose parameters such as "frequency" of returns (daily, monthly etc.), "time frame" (1 or 3 or 5 years of historical data etc), benchmark (same of the portfolio or the ...
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1answer
901 views

Relationship between Tracking Error and Beta to benchmark

Analyzing an indexed portfolio, can we say there is any relationship between ex-ante TE and Beta to benchmark? Tracking error is the volatility of the difference in returns between the portfolio and ...
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0answers
49 views

Constructing Portfolio Beta

Suppose I have a portfolio with securities with different history. Say some securities have 15-20 years of history and some are like Uber or Lyft, which has limited history. There are assets with 1/2/...
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1answer
77 views

Is there a robust way to calculate stock beta or factor exposure that's specific to crashes?

Commonly known factors like market, value, momentum etc. have positive expected returns because they draw-down unexpectedly and investors require a risk premium for holding them. This idea is extended ...
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1answer
86 views

Calculating beta when holding market portfolio

Suppose that CAPM holds and that you hold a portfolio of the market portfolio and the risk-free asset with weights equal to 0.74 and 0.26 respectively. What is the beta of your portfolio? My ...
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1answer
211 views

Calculating idiosyncratic risk of stock without beta or risk free rate

I have been given the expected returns and standard deviations of 2 stocks A and B, as well as the standard deviation of the market portfolio and correlation between security A and the market ...
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1answer
108 views

How to apply derived beta to daily change?

I've taken three months of price return data for two instruments and calculated a $\beta$ between the two using the formula $\beta = \frac{Cov(x,y}{Var(y)}$ with the goal of estimating what the ...
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2answers
112 views

if the​ risk-free interest rate​ increases, and nothing else changes, is the market portfolio still efficient?

I think the response is no but I don't know why If so, Stocks with betas greater than one will be buying opportunities and stocks with betas less than one will be selling opportunities because I can ...
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227 views

Why we can't lower a volatility of a portfolio (without changing expected return) by substituting a zero beta stock with a risk free asset?

part of the answer is that a zero-beta stock must be negatively correlated with other stocks in the portfolio. So having a zero beta stock can decrease the volatility. Does that mean that the ...