Asked by Kaitlyn Foley on May 26, 2024
Verified
Empirical results regarding betas estimated from historical data indicate that betas
A) are constant over time.
B) are always greater than one.
C) are always near zero.
D) appear to regress toward one over time.
E) are always positive.
Historical Data
Past information and records about an entity or market's performance, which are used for research, analysis, and planning.
Betas
A measure of the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole; it indicates how much the asset's price is expected to move relative to market movements.
- Understand the concept of beta and its relevance in measuring stock risk.
- Differentiate between systematic and unsystematic risk.
Verified Answer
TA
Tiffany AngelineMay 27, 2024
Final Answer :
D
Explanation :
Betas, as estimated from historical data, tend to change over time and often show a tendency to regress toward one. This phenomenon is known as "beta regression toward the mean," where extremely high or low betas tend to move closer to the market beta of one over longer periods.
Learning Objectives
- Understand the concept of beta and its relevance in measuring stock risk.
- Differentiate between systematic and unsystematic risk.