Calculating Beta for Compuware Co. Essay Example

while other times it might not be as good, and the value of beta will depend on the timeframe we consider. The impact of the risk-free rate on beta is relatively small, as demonstrated in Exhibit 1. When we include or exclude the risk-free rate from our calculations, we observe little change in the overall beta. This can be attributed to the stability of the risk-free rate during the analyzed time periods. If the risk-free rates were more volatile, we would expect to see a greater fluctuation when taking beta into account. Comparison between S&P 500 and...

CAPM - When comparing excess returns on the S&P 500 to the CAPM model using Ken French's data, we observe minimal differences in beta calculations. However, as we analyze shorter time frames, specifically monthly frequencies, we start to notice an impact. Notably, the monthly one-year betas exhibit greater variability compared to the monthly three or five-year betas. Given that Yahoo Finance and Reuters provide transparent explanations of their beta calculations, we can easily align our values with theirs.

When performing a regression analysis on the excess returns of the S;P 500 against a company's stock return, both the choice of time frame and the frequency of data recording greatly affect the beta. Therefore, it is important for analysts to be skeptical of betas without knowledge of how they were calculated. The ability to manipulate the parameters in calculating a beta should be acknowledged and justified. In essence, when calculating beta, it should be viewed as an estimation.