There are several publishers who provide beta estimates for companies, including
ID: 2749827 • Letter: T
Question
There are several publishers who provide beta estimates for companies, including Moody's, Standard and Poor's, Value line, and others. (1) If you saw three different betas for the same company that ranged from 1.0 to 1.7, how would you explain this difference to a local investment club gathering? (2) Some services report an "up beta" and a "down beta" indicating how the company stock does in either a bull or a bear market. For this same investment club, which beta would you tell them to use today?
Explanation / Answer
1)If there are three different betas for the same company that ranged from 1.0 to 1.7 it can be because of Fluctuating demand for its product and services or due to fluctuating business cycle in the Industry in which is Operates.It can also be due to Changing needs of the consumers or unstabillty of its demand for its product or services
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2)In such a case an averge should be used by applying proper weights to different betas.
Beta that investment club should use = (1+1.7)/2
= 1.35 ...(Aggresive Stock)