- On average 18,000 stocks listed at any point in time on any stock exchange in the world from 2002 to 2018
- Grouped the stocks into quintiles based on the level of beta
- Highest betas would be in the top quintile, lowest beta would be in the bottom quintile
- Observed what happened to the average beta of these stocks over 10 years
- Past betas tend to regress towards 1.00x
- The beta you use for valuation is to infinity
- To avoid mistake we use three betas: High risk: 1.25x, Average risk: 1.00x, low risk: 0.75x
- If you use a beta outside of this range you have a higher obligation to justify
Q3 hedge fund letters, conference, scoops etc
Article by Become A Better Investor
