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If an asset has a beta above 1, it indicates that its return moves more than 1-to-1 with the return of the market-portfolio, on average; that is, it is more volatile than the market. In practice, few stocks have negative betas (tending to go up when the market goes down). Most stocks have betas between 0 and 3. [1]
The capital asset pricing model (CAPM) predicts a positive and linear relation between the systematic risk exposure of a security (its beta) and its expected future return. However, the low-volatility anomaly falsifies this prediction of the CAPM by showing that higher beta stocks have historically underperformed lower beta stocks. [1]
In investing, downside beta is the beta that measures a stock's association with the overall stock market only on days when the market’s return is negative. Downside beta was first proposed by Roy 1952 [ 1 ] and then popularized in an investment book by Markowitz (1959) .
In this case, a negative beta just a hair under 0 doesn't have any more significance than a positive 0.01 beta would. Ferrellgas will move with gas prices more than with the broad market. Agnico ...
A beta below 1 can indicate either an investment with lower volatility than the market, or a volatile investment whose price movements are not highly correlated with the market. An example of the first is a treasury bill: the price does not go up or down a lot, so it has a low beta. An example of the second is gold. The price of gold does go up ...
For example, if a stock increased by 5% because of some news that affected the stock price, but the average market only increased by 3% and the stock has a beta of 1, then the abnormal return was 2% (5% - 3% = 2%). If the market average performs better (after adjusting for beta) than the individual stock, then the abnormal return will be negative.
A higher volatility stock, with the same expected return of 7% but with annual volatility of 20%, would indicate returns from approximately negative 33% to positive 47% most of the time (19 times out of 20, or 95%). These estimates assume a normal distribution; in reality stock price movements are found to be leptokurtotic (fat-tailed).
At the end of the period: 1 sell the mispriced asset 2 use the proceeds to buy back the portfolio 3 pocket the difference. Where today's price is too high: The implication is that at the end of the period the portfolio would have appreciated at the rate implied by the APT, whereas the mispriced asset would have appreciated at less than this ...