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Such estimators include the Blume/Bloomberg beta [6] (used prominently on many financial websites), the Vasicek beta, [7] the Scholes–Williams beta, [8] the Dimson beta, [9] and the Welch beta. [10] The Blume beta shrinks the estimated OLS beta towards a mean of 1, calculating the weighted average of 2/3 times the historical OLS beta plus 1/3 ...
To calculate beta, investors divide the covariance of an individual stock (say, Apple) with the overall market, often represented by the Standard & Poor’s 500 Index, by the variance of the ...
The beta for any stock can be found on most popular financial websites or through your online broker. Examples of beta Here are three popular securities and their betas as of April 16, 2024.
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[] / [] is the "beta", return mentioned — the covariance between the asset's return and the market's return divided by the variance of the market return — i.e. the sensitivity of the asset price to movement in the market portfolio's value (see also Beta (finance) § Adding an asset to the market portfolio).
The term () represents the movement of the market modified by the stock's beta, while represents the unsystematic risk of the security due to firm-specific factors. Macroeconomic events, such as changes in interest rates or the cost of labor, causes the systematic risk that affects the returns of all stocks, and the firm-specific events are the ...
Beta is an important measure of one type of risk, but it doesn’t encapsulate all of a stock’s risk. Stocks are shares of real-life businesses , which subjects them to the economic fortunes of ...
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data.. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.