How do you define Beta?
We display Betas for all stocks in the Quote Box section of the Stock Report. It is also available as a screenable item.
How is this defined?
Beta is a measure of a company's common stock price volatility relative to the market. It is calculated as the slope of the 60 month regression line of the percentage price change of the stock relative to the percentage price change of the relevant index (e.g. the FTSE All Share). Beta values are not calculated if less than 24 months of pricing is available.
Why 60 months?
There are two estimation decisions to consider when determining Beta. The first concerns the length of the estimation period. Most estimates of Betas use five years of data. The trade-off is simple: A longer estimation period provides more data, but the firm itself might have changed in its risk characteristics over the time period. The second estimation issue relates to the return interval. Using daily or intra-day returns will increase the number of observations in the regression, but it exposes the estimation process to a significant bias in Beta estimates related to non-trading. For instance, the betas estimated for small firms, which are more likely to suffer from non-trading, are biased downwards when daily returns are used. Using weekly or monthly returns can reduce the non-trading bias significantly.
