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Raw Beta vs Adjusted Beta
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Prakash Kamathia
10
Prakash Kamathia, India

Raw Beta vs Adjusted Beta

While calculating cost of equity via CAPM method, which beta one should use. Raw beta or adjusted beta and why?

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  Ramon
4
Ramon
Consultant, Spain
 

Raw Beta vs Adjusted Beta

In my modest opinion, it is better to adjust the raw beta that arises from the division of the asset return covariance with market by the market return variance. Frequent adjustments are:
(1) towards beta=1, and
(2) to take into account the effect of the leverage of the company (relevered beta).

  andres elorza
0
andres elorza
Student (University), Colombia
 

Raw Beta versus Adjusted Beta

The cost of equity calculated with the raw beta will give you a cost of equity without the risk of the debt, in other words, it will give you the cost of equity of a unleveraged firm.

 

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More on Capital Asset Pricing Model
Summary Discussion Topics
topic Can Beta of a Stock be 0? And can Beta be Negative?
topic What is Beta? Explanation and a Few Remarks
topic Application of Capital Asset Pricing Model in Pakistan
👀Raw Beta vs Adjusted Beta
topic How to Use CAPM for Project Analysis?
topic Calculating Beta of Portfolio after Portfolio Change
topic Question - CAPM and Beta
topic CAPM is Irrelevant to Use
topic CAPM usage by Fund Managers
topic Why Sharp Increase in the Calculation for Betas
topic Are US Treasury Bills still Zero Beta?
topic Calculating Company Beta
topic CAPM Model and Calculating the Inflation Rate?
topic Concept of Marginality and CAPM
🔥 The Fama-French Three-Factor Model
topic Testing CAPM with Individual Stock Returns
Special Interest Group
Knowledge Center

Capital Asset Pricing Model


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