Tag: beta

Estimating and Forecasting Betas

Estimating and Forecasting Betas

Estimating and forecasting beta of each stock that is a potential candidate for inclusion in a portfolio is a prerequisite to apply the single-index model. Analysts could be asked to provide subjective estimates of beta for a security or a portfolio. Conversely, estimates of future beta could be arrived at by estimating beta from past data and using this historical beta as an estimate of the future beta.

The single index factor model

The single index factor model

The single-index factor model assumes that the co-movement between stocks is due to a single common influence or index. Casual observation of stock prices reveals that when the market goes up (as measured by any of the widely available stock market indexes), most stocks tend to increase in price, and when the market goes down, most stocks tend to decrease in price.

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