The //''Beta''// measures the amount that investors expect the stock price to change for each additional 1% change in the market. The average beta of all stocks is 1.0. A stock with a beta lower than 1.0 is unusually insensitive to market movements. A stock with a beta > 1.0 is above average sensitive to market movements.

The formula for beta is:

$\Large \beta_i$ = $\LARGE \frac{\sigma_{im}}{\sigma^2_i}$

Where $\Large \sigma_{im}$ is the [[Covariance]]@math between the stocks returns and the market returns and $\Large {\sigma^2_i}$ is the variance of returns in the market.
bag
finance_public
created
Tue, 01 Feb 2011 21:51:23 GMT
creator
dirkjan
modified
Tue, 01 Feb 2011 21:51:23 GMT
modifier
dirkjan
tags
M12
Principles of Corporate Finance
Term
creator
dirkjan